Inflation 1970s-style could derail the bull market in stocks

Inflation can adversely affect corporate profits, household discretionary spending, and stock prices. Rising costs for raw materials have a dampening effect on profits. Increasing costs of food and energy begin to account for larger and larger portions of a household's disposable income. From an investment perspective, when the annual inflation rate jumped significantly between 1971 and 1974, stock market (

) returns eventually suffered as shown below. With the Fed creating asset inflation via quantitative easing, it is important investors keep their eye on the inflation ball over the next six to 18 months.

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