Will inflation hurt stock market returns?

As an investor you may wonder whether stock market returns will suffer if inflation keeps rising. Here’s some good news:

Inflation isn’t necessarily bad news for stock returns

 • 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 market returns. Remember, the US stock market accounts for over 50% of our global portfolios.

• Since 1992, one-year returns on stocks have fluctuated widely. Yet the weakest returns can occur when inflation is low, and 23 of the past 30 years saw positive returns even after adjusting for the impact of inflation.

• Over the period shown in this chart (below), the S&P 500 posted an average annualised return of 8.1% after adjusting for inflation. The annualised inflation-adjusted return on US stocks is 7.3% when going all the way back to 1926.

A look back at history

History shows that stocks and shares tend to outpace inflation over time - a valuable reminder for investors concerned that today’s rising prices will make it harder to reach your long-term financial goals.