Will Inflation Hurt Stock Returns? Not Necessarily.

Investors may wonder whether stock returns will suffer if inflation keeps rising. But a look at equity performance in the past three decades does not show any reliable connection between periods of high (or low) inflation and US stock returns.

While 2022 saw high inflation and poor stock returns, there have been other periods with high inflation and strong stock market performance.
Twenty-two of the past 30 years saw positive stock returns even after adjusting for the impact of inflation.
Over the period charted, the S&P 500 posted an annualized compound return of 7.0% after adjusting for inflation.

History shows that stocks tend to outpace inflation over time—a valuable reminder for investors concerned about rising prices.

Disclosures:

Past performance is no guarantee of future results. Short-term performance results should be considered in connection with longer-term performance results. Investing risks include loss of principal and fluctuating value. There is no guarantee an investment strategy will be successful. Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio.

Real returns illustrate the effect of inflation on an investment return and are calculated using the following method: [(1 + nominal return of index over time period) / (1 + inflation rate)] − 1. S&P data © 2023 S&P Dow Jones

Urban Consumers (CPI-U). Source: US Bureau of Labor Statistics.
This article was provided by Dimensional Fund Advisors LP is an investment advisor registered with the Securities and Exchange Commission. The information in this material is intended for the recipient’s background information and use only. It is provided in good faith and without any warranty or representation as to accuracy or completeness. Information and opinions presented in this material have been obtained or derived from sources believed by Dimensional to be reliable and Dimensional has reasonable grounds to believe that all factual information herein is true as at the date of this material. It does not constitute investment advice, recommendation, or an offer of any services or products for sale and is not intended to provide a sufficient basis on which to make an investment decision. Before acting on any information in this document, you should consider whether it is suitable for your particular circumstances and, if appropriate, seek professional advice. It is the responsibility of any persons wishing to make a purchase to inform themselves of and observe all applicable laws and regulations.