Economies and Prices
Stock-market blowouts come in four flavors.
One is economic. Anticipated setbacks are fine. If inflation rises according to expectations, or corporate earnings slip, stocks will be undeterred. Surprises are the problem. An example is the 1973-74 crash, when investors were twice surprised. Not only did the oil crisis spark unforeseen inflation, but--contrary to the prediction of the Phillips curve--unemployment did not fall as prices rose. Over those two years, the S&P 500’s after-inflation total return was negative 47%.
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John Rekenthaler does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.