Simon Collins
3 min readSep 1, 2023

Party like it’s 1999 continued…Inflation is the key.

After a summer lull, the stock market performance is looking positive again.

If you believe that inflation is the key to long term interest rates and the future of share prices, things seem to be taking a turn for the better. A bull case for stock and bonds is on the cards.

Picking your inflation metric seems to be important these days. Without wanting to be too technical, if you use HICP method (Harmonised Index of Consumer Prices) inflation in the USA is already around 2%. But no matter what methodology you use, the trend is clear that inflation is on the down turn.

While the Fed still urges on the side of caution and says the data should dictate the rates, it looks like the market has already concluded that the worst is over.

Covid bottlenecks appear to be history. The jobs market is easing and people are getting back to work. There is increasing anecdotal evidence which point to easing market conditions — Employers are getting tough on their staff being back in the office. Shops are starting to discount again. If you Google for flights for October, they look much more like pre-pandemic prices.

Couple this with the continual decline in excess savings in the US (which is below $190 billion from a peak of $2.1 trillion) and the end of the moratorium on student debt ($1.77 trillion) things are looking tight for consumers.

As always the wild card for inflation is energy prices. So far this year all the talk of significantly higher crude prices has not materialized. Whilst OPEC+ have done their best to prop up the market, supply has been strong balancing the market at current price levels.

Stuck in a range.

Have rates on 10 year T Bills peaked? It’s looking that way, if the past week is anything to go by.

Investors are locking in long duration bonds and preying for a bond rally. This looks like the most likely scenario as it is only a question of time that Chinese deflation increasingly impacts the rest of the world.

Conclusion: Lower inflation, lower interest rates, the stock market rally continues.