Taps Coogan – October 29th, 2021

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File the following chart under the bullish category. Based on data from Bloomberg, via ISABELNET, S&P 500 operating margins are the best they’ve been in at least 20 years.

The popular story on inflation is that is supposed to compress corporate margins. While that is happening for subset of companies, most companies are passing on rising input costs to consumers just fine.

The real danger of high inflation vis-a-vis most stocks is not inflation itself but the possibility that the Fed may someday react to high inflation and raise interest rates. For that reason, the Fed has, practically speaking, promised to ignore inflation for as long as it takes for it to fall back to 2%.

That should tell you an awful lot about how much they think their policy contributes to inflation in the first place.

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