Should S&P 500 index fund owners change anything with inflation so hot?
Should S&P 500 index fund owners change anything with inflation so hot?
Inflation's running hot again. The Bureau of Labor Statistics said on Wednesday, Oct. 14, that the consumer price index climbed 3.7% in the 12 months through September, up from a 3.4% pace for August.
The S&P 500 (^GSPC -1.09%) slid about 1.1% that day, finishing near 7,719.
Much of the jump came from energy. Gasoline prices climbed 9.1% in September alone, accounting for over half the month's total increase.
Leaving out food and energy, prices were up a more modest 2.6% from a year earlier. Still, a headline number like 3.7% can make index fund holders nervous, especially after a down day.
Has the S&P 500 historically struggled after readings this high? Not really. It's usually kept rising, but more slowly than when inflation was tamer.
Hot readings have meant smaller gains
I paired every month's inflation rate since 1950 (the change in the seasonally adjusted Consumer Price Index (CPI) from a year earlier) with the S&P 500's price change over the following 12 months.
Because each month's report normally comes out the next month, I started the clock at the close of that following month. The numbers are price only, not counting dividends.
This left 908 months with a full year of results. Of these, 337 had inflation at 3.5% or above -- over a third of the total. Twelve months after these hot readings, the S&P 500 had risen in about 69% of cases, and its average gain came to roughly 7%. After the 480 months with inflation below 3%, though, the index closed the next year higher about 79% of the time, and its average gain was about 11%. Across all 908 months, it rose about 75% of the time, averaging roughly 9%.
Averytin News Financial update.