Over the past two years, inflation and stocks have been perfectly anticorrelated. When inflation goes up, stocks go down. And when inflation goes down, stocks go up. 

It has been the most important relationship in the financial markets. 

Knowing this, I’ve been worried about how stocks would fare in response to December’s consumer price index (CPI) report. I had a sneaking suspicion that data would show a rise in inflation, which would likely cause stocks to slide in response.

And today that fear came true. 

December’s CPI report showed that consumer prices rose 3.4% in that month, faster than the 3.1% rise recorded in November. 

In other words, inflation rose by 30 basis points in December. And now stocks are crashing in response. 

That’s the bad news. But there’s also some great news. 

The Good News About Inflation

While I’ve been worried about stocks going into today’s CPI report, I was also excited to get it over with. That’s because very soon, inflation should start falling again. And that means stocks should start rising again. 

Real-time measures of inflation show that while inflation ticked higher in December, it is crashing here in January. 

Oil and gas have remained weak in the new year. Aluminum prices have crashed. Steel, copper, and nickel prices have dropped. And cattle, corn, coffee, and wheat prices are declining, too.

Furthermore, according to survey data, price hiking plans have slowed. Consumer inflation expectations are crashing. And decentralized analytical firm Truflation’s real-time measurement shows that in January, the inflation rate has plunged to ~2% from around 2.5% in December. 

Across the board, the data suggests that inflation is commandingly resuming its decline in January. 

That is why the Cleveland Fed’s Nowcast model – the best real-time measure of inflation – presently forecasts the U.S. rate to drop to 2.9% in January, from 3.4% in December. 

If true, that means the inflation rate will drop 50 basis points this month – matching its biggest decline since the summer of 2023. 

In other words, inflation isn’t just going to start falling again. It will fall with significant force in January. 

The Final Word

That’s why I’m really excited that today has finally come and gone. 

Now that this ‘reinflation’ report is in the rearview mirror, the market will start looking forward to the next one. Current forecasting suggests that January’s data will show a big drop in inflation. 

With that in mind, remember: rising inflation = falling stocks; falling inflation = rising stocks. 

We just experienced a temporary bout of rising inflation. Stocks dropped. Now inflation should resume its decline, which means stocks should resume their rally very soon. 

And to prepare for it, we’re busy finding the best stocks to buy for those incoming gains. 

Some great opportunities are presenting themselves in the market right now. 

Find out what we’re buying ahead of a big market turnaround.

_{On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.}

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