Once in the last 20 years, inflation poked its head above 5%.

That happened in 2008 – the worst year in the stock market since the Great Depression. Stocks fell 37%.

But was it a coincidence that inflation soared at the same time the stock market crashed?

To find out, let’s look a little further back in history…

Besides 2008, some of the worst years in the stock market were 1973 and 1974. What happened with inflation back then?

Just like in 2008, inflation rose above 5%. And those turned out to be the second- and fourth-worst years for stocks after the Great Depression.

Inflation poked its head above 5% two other times in the 1970s. And stocks tanked then, too. Take a look…

The message from history is simple. The stock market hates rising inflation.

It’s a serious warning sign for stocks if the year-over-year inflation rate rises above 5%.

This brings us to today…

The stock market went down this week, the experts say, because of rising inflation expectations. The Consumer Price Index came out yesterday, stating that inflation rose over the last 12 months.

But the new inflation number was just 2.1%.

Excuse my technical language here… but “big whoop.”

Really? 2.1%? That’s cause for concern?

I don’t think so. I think a better explanation is that traders and investors have become nervous over the last few weeks, looking for a reason to sell. Inflation was simply this week’s excuse.

Rising inflation has historically been terrible for stocks. It’s a clear danger sign when the year-over-year inflation rate rises above 5%.

But right now, we are nowhere near that number. And – while I could be wrong, of course – I don’t expect we will see 5% anytime soon.

Any number of things could derail this great bull market in stocks. I don’t expect that the rate of inflation will be THE thing that derails this particular boom…

Don’t let this week’s “inflation scare” spook you. Stay on board with the “Melt Up.”

Good investing,

Steve

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Source: Daily Wealth