Inflation, epidemics and war? There are prices in that market.

Instead of making fruitless predictions, we can plan for a wide range of results. But to do that requires a lot of thinking – and the ability to look past the current news. Just as too much optimism can lead you to foolishness, too much fading can lead to panic – which means in this case, both investing in stocks and bonds can be avoided, as both major asset classes have performed poorly.

Instead, in such a buoyant time, it’s worth appreciating the potential for embedded profits at terribly low prices. First, always make sure you have enough cash to meet your urgent needs. But after that, if you steadily invest in diversified, low-cost index funds that track the entire stock and bond market, those low prices can be a boon, assuming the markets will eventually recover. History says they will.

It will be easy to leave in the market.

It’s hard to miss the bad news about red-hot inflation. Prices for a wide range of products and services are rising rapidly, but recently, the situation has worsened. The latest official report from the Consumer Price Index shows that overall inflation in the United States rose 8.5 percent year-on-year in March, the fastest pace since December 1981. Different types of inflation have also been problematic in the United States. And all over the world.

John Butters, a senior research analyst at FactSet, wrote in an April 12 report that 65 percent of the S&P 500 companies that reported earnings for the first quarter of this year cited inflation as their biggest problem. He quoted Lawrence Cargius, chief executive of global food company McCormick, as saying in an earnings call: And as such, we have raised our spending inflation guidelines. It’s a middle-aged teen. “

The three main causes of the current inflation explosion are well-initiated and include:

  • A combination of stimulus revenue and fiscal policy taken to support the recovery of the economy from the 2020 coronavirus recession.

  • Outbreaks appear to be exacerbated by the epidemic, from shortage of spare parts for automobiles to disruptions in Chinese factories, insufficient number of willing and able-bodied workers.

  • Russia’s war in Ukraine and Western sanctions on Russia, which together have increased the prices of energy, food and other commodities and contributed to the supply deficit.

Yet the problem of cracking inflation is rarely a new discovery. A year ago, it was clear that prices were rising fast enough that they needed to be taken seriously. I pointed it out then and many more did.

Russia’s war complicates matters considerably. However, it is at least possible that inflation continues to decline. James Paulsen thinks so. He is the chief investment strategist at Luthhold Group, an independent stock research firm in Minneapolis.

“I think we can stay at a turning point,” he said in an interview. “There is a good chance that inflation will reach its peak or be very close to its peak.”

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