Persistent Inflation Poses a Genuine Threat to Stock Prices

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If you do not think inflation will be persistent, think again.

The Fed repeatedly tells us the rationale to keep the monetary pedal to the metal is a weak labor market. But the graph below calls their logic into question.

Quitters are those leaving jobs voluntarily and, in theory, in search of better or higher-paying jobs. The quit rate of 2.9% is the highest in its 20-year history. A high quit rate is a signal of a healthy labor market.

It is not just a strong labor market forcing prices higher. We must also factor in supply chain difficulties and shortages of many goods and commodities.

It is time we best start thinking outside of the stable inflation box. The inflation environment most investors are very comfortable with is collapsing.

As we have seen for the past few weeks, equities are becoming sensitive to the rising possibility of persistent, non-transitory, inflationary pressures. As such, it is worth revisiting equity analyses I shared in May 2020.