To The Moon

The June CPI reached 9.1%, once again a 40-year record high.

With high inflation, the market is worried that the U. economy will fall into recession, and the earnings of listed companies may suffer a blow.

Historical Experience

Economists' forecasts are always puzzling, so why not look at the economic trends of the 1970s when the U.S. experienced stagflation?

As the chart below shows,

in 1974, the U.S. CPI was as high as 12%, and GDP growth into recession;

after 1979, the U.S. CPI exploded again to 14%, GDP growth also fell into recession.

Today, 9.1% is highly possble to bring the U.S. economy into recession.

1. Let's look at $S&P 500(.SPX)$ trend:

1. the first wave of hyperinflation brought the stock market plunge, but the index bottomed out earlier than CPI and GDP;

2. the second hyperinflation, although with GDP recession, the stock market almost did not fall.

2. Hyperinflation + recession, why did the stock market not fall in 1979?

Looking at the P/E of the $S&P 500(.SPX)$ at the time, the P/E ratio had fallen to single digits during the first wave of hyperinflation in 1974, and was at the same bottom when inflation resumed in 1979.

Conclusion

The ultra-low P/E left no much room for $S&P 500(.SPX)$ to continue its decline, which may help explain why stock market can survive hyperinflation in 1979.

In terms of P/E, the S&P 500 is not as cheap as it was during the 2008 financial crisis, and may still have room to fall if earnings misses.

The good news is that the CPI may top in June as commodity prices such as $Light Crude Oil - main 2208(CLmain)$ have started to plunge.

There is a rare investment opportunity ahead if the market crashes.