Valuation – Average Forward P/E in Core PCE Inflation Ranges Since 1976 Historically, inflation generally had a negative impact on valuations when core PCE approached 2%, in the anticipation of rate hikes. Image: Goldman Sachs Global Investment Research
Inflation – S&P 500 LTM Sales Growth vs. Core CPI Since 1970 Rising inflation tends to boost S&P 500 earnings. According to Goldman Sachs, a 100bp increase in average annual core CPI would lift the S&P 500 EPS to $170 in 2021. Image: Goldman Sachs Global Investment Research
Inflation – U.S. Core CPI Goods and Core CPI Services 20 years of almost no inflation in goods. Image: Deutsche Bank Global Research
U.S. Business Cycle: Output Gap vs. Core PCE Inflation The mature phase of the U.S. business cycle began 24 months ago. The mature phase lasted 72 months in the late 1960s and 57 months in the late 1990s. Image: NBF Economics and Strategy
Sentiment Scores During Earnings Calls Corporate sentiment remains weak amid inflation worries. Image: BofA US Equity & Quant Strategy
Euro Area and U.S. Inflation and Central Bank Forecasts The Fed projects U.S. inflation well above 2% into 2023. Image: BlackRock Investment Institute
U.S. Transitory Inflation Meter Is U.S. inflation transitory? The BofA US transitory inflation meter remains at 100. BofA expects core PCE inflation will settle down to 2.1% by the end of 2022. Image: BofA Global Research
U.S. Output Gap (% of potential GDP) and Inflation U.S. output gap (% of potential GDP) tends to lead underlying core PCE by 12 months. Image: Pictet Asset Management
PCE Inflation vs. Output Gap (Leading Indicator) Positive output gap suggests higher core inflation next year. Image: NBF Economics and Strategy
U.S. Core PCE vs. Fed Target The U.S. core personal consumption expenditures price index, which excludes food and energy, rises to 1.6% in June. Inflation trending back up toward the Fed’s 2% target is good news. You may also like “U.S. Core Inflation Expected Over the Next 21 Months.”