Why Inflation Doesn’t Worry Marc Chaikin

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Inflation. Inflation. Inflation. The market’s gotten slammed with headlines about rising prices. Should you be alarmed?

One seasoned market watcher says investors shouldn’t get worried yet, especially with plenty of other good things happening.

“A little bit of inflation is not a bad thing because it usually reflects a rising economy,” Marc Chaikin, CEO of Chaikin Analytics, told Market Insights in an interview on Friday. “The big disconnect here is an assumption that rising wages in a strong economy have to lead to runaway inflation.”

The narrative emerged on January 31 with murmurings from Federal Reserve policymakers. Markets wavered. Two days later, the Labor Department reported the sharpest spike in hourly wages this decade. This time, markets crashed.

Click here for more on Chaikin’s analysis tool.

But should investors really blame the inflation for the selloff? After all, many experts are now fingering excessive risk-taking in exotic instruments that only work in complacent markets. One might also ask, if rising prices are such a killer, why did the S&P 500 surge back sharply after another report on February 14 showed consumer inflation spiking at almost twice the expected rate? Chaikin had an answer.

“Inflation that leads to higher prices without curtailing demand leads to higher profit margins,” he said. “It’s not time for bell bottoms because we’re not heading back to the 1970s,” he added, referencing an era of rising inflation and stagnant stock appreciation.

Chaikin, who lived through that bear market, feels just the opposite today. He disagrees with strategists who think we’re in the later stages of a bull market that began in 2009, pointing to a 2014 downturn in earnings and weakness in small caps the following year. That, in turn led to a crash about two years ago. “I think this bull market started in 2016.”

He’s also been tracking a longer-term channel on the S&P 500, which the market tried to escape last month before pulling back.

“The fact that we pulled back to the channel is very bullish,” Chaikin concluded. “You’ve got to think outside the box.”

S&P 500, 30-month chart, weekly candles
S&P 500, 30-month chart, weekly candles
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David Russell is VP of Content Strategy at TradeStation. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.