The challenge for equity investors is on multiples. So rising inflation actually benefits those numbers. It’s also challenging for equities, but when you think about corporate revenues, profits, dividends, they actually go up with inflation. And what that means is those coupon payments buy you less in terms of real dollars as inflation goes up. The coupon payment is typically fixed in nominal terms. That’s tough on consumers, particularly lower end consumers where things like energy and food are a higher proportion of their income. They have to stretch their dollar further. It’s certainly painful and challenging for consumers. Inflation is painful and challenging all around. So now let’s look at the historical context. What’s been the pain point has been multiples. And if you look at the market, earnings have actually been creeping upwards. And so you really see how the pendulum has swung when it comes to monetary policy. It’s, inflation is our number one problem and we’re on it and we’re going to fight it and even if that means risking a recession. And now the message from the Fed is completely different.

And when you think about the Fed, towards the end of the last year the Fed was still saying inflation is transitory, don’t worry about it.

So it’s a little broader than just rates, but that’s definitely a big part of it. It’s liquidity in the market, it’s multiples, it’s market enthusiasm, et cetera. TONY DESPIRITO: It’s mostly interest rates, but it’s broader than that. OSCAR PULIDO: And is that interest rates? When you say financial conditions, is that one of the ways. At the beginning of the year, financial conditions were very loose by any means historically, and we’ve very rapidly moved from loose financial conditions to tight financial conditions, and that’s had a huge impact on valuations. TONY DESPIRITO: So let’s start by talking about this year and then maybe relate that back to what we’ve seen historically. So how do stocks typically do when we’re in these periods of high inflation? A big reason for this has been that inflation has been a lot higher than people expected. The first half of the year marked the worst start for the S&P 500 since 1970 and we’ve seen a lot of volatility in the market. OSCAR PULIDO: Tony, welcome back to The Bid. From market winners and losers to underappreciated opportunities, together we’ll break down how inflation is impacting the economy and what history can teach us about the outlook for the stock market.

Today, I get to welcome back an audience favorite to The Bid, BlackRock’s CIO of US Fundamental Equities, Tony DeSpirito. Welcome to The Bid, where we break down what’s happening in the markets and explore the forces changing the economy and finance. OSCAR PULIDO: With inflation at the highest level in decades and volatility continuing to surge, equity investors are questioning their next moves.

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