📉The stock market declined, with the S&P 500 shedding 0.4% to close the week at 6,915.61. The index is now down 0.9% from its Jan. 12 closing high of 6,977.27, but it’s up1%year-to-date. For market insights, check out the Stock Market tab at TKer. »
Consumers and businesses experience inflation through the higher prices of goods and services. And those goods and services are sold by companies. And many of those companies comprise the publicly traded corporations listed on the stock market.
These companies aren’t always raising prices. But when they do, it’s because they believe it’ll support earnings growth. Often, the increase occurs in the context of passing on their own rising costs to their customers.
All this speaks to how companies have been dealing with tariffs. From Morgan Stanley’s Jan. 13 research note addressing tariff costs:
US Corporates Are Leveraging Pricing Power — Bullish for Earnings and Supportive of the Labor Market
Hidden in the depths of the Q3 US GDP print was evidence that firms are now starting to raise prices. The data in the GDP release is corroborated by data from the National Federation of Independent Businesses. We believe that companies are raising prices to pass through tariff costs to consumers rather than absorb a hit to margins. We view this as bullish for corporate earnings, while also reducing downside risk to labor markets.
This dynamic between inflation and stock prices is not new.
Last October, Deutsche Bank published a study on asset prices over the past 200 years. They considered the relationship over 25-year periods. From the report:
Nominal equity returns rise almost linearly with inflation, suggesting that equities serve as an effective inflation hedge—particularly relative to cash. However, real returns tend to decline slightly as inflation increases, indicating that equities perform best in lower-inflation environments. Over a 25-year horizon though, the difference in real returns between moderate deflation (around 0% to -2% inflation) and fairly strong inflation (around 8–9%) is relatively small; the sharp decline occurs only at very high inflation levels.
Therefore, if you expect a structurally higher inflation regime ahead, equities should remain a reasonable good nominal hedge over the long run, with real returns likely to stay relatively well protected.
In the context of stocks acting as a hedge against inflation, the key finding here is that nominal returns have moved “almost linearly with inflation.” The fact that real returns (i.e., returns adjusted for inflation) have held up under most inflation scenarios is a bonus.
In the words of Ritholtz Wealth’s Ben Carlson, it’s a “pretty darn good long-term hedge to me.”
Their approach to pricing — whether it’s lowering them or raising them — is about maximizing earnings.
Sometimes that means raising prices on the goods and services they sell to you.
And you don’t have to like it.
But if you are invested in the stock market, you have exposure to the side that’s raising those prices.
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*A popular reaction to the claim that tariffs have boosted prices is to ask, “Then why hasn’t inflation been higher?” While inflation rates have generally been steady, they remain above the Fed’s 2% target rate. We have to consider the possibility that inflation rates would be much lower if not for tariffs.
There were several notable data points and macroeconomic developments since our last review:
🎈 Inflation could be cooler. The personal consumption expenditures (PCE) price index in November was up 2.8% from a year ago. The core PCE price index — the Federal Reserve’s preferred measure of inflation — was up 2.8% during the month, up from October’s 2.7% rate. While it’s above the Fed’s 2% target, it remains near its lowest level since March 2021.
On a month-over-month basis, the core PCE price index was up 0.16%. If you annualize the rolling three-month and six-month figures — a reflection of the near-term trend in prices — the core PCE price index was up 2.3% and 2.6%, respectively.
⛽️ Gas prices tick higher, but remain relatively low. From AAA: “As winter weather grips much of the nation and fewer drivers hit the road, gas prices remain low with the national average at $2.85. Gasoline demand is lowest during this time of year, keeping the price of crude oil in the high $50 – low $60 range. Demand begins to ramp up toward the end of February and early March as the weather starts getting milder, and travelers take Spring Break trips.”
🛍️ Consumer spending ticks higher. According to BEA data, personal consumption expenditures increased 0.5% month-over-month in November to an annual rate of $21.4 trillion, an all-time high.
💳 Card spending data is holding up. From JPMorgan: “As of 16 Jan 2026, our Chase Consumer Card spending data (unadjusted) was 5.5% above the same day last year. Based on the Chase Consumer Card data through 16 Jan 2026, our estimate of the US Census December control measure of retail sales m/m is 0.47%.“
(Source: JPMorgan)
From BofA: “Total card spending per HH was up 3.3% y/y in the week ending Jan 17, according to BAC aggregated credit & debit card data. Lodging & grocery saw the biggest rise in y/y spending growth since last week. Furniture & clothing saw the biggest decline. 2026 is off to a good start. Part of the uptick in spending may be driven by HHs anticipating larger tax refunds this year.“
👎 Consumer vibes remain poor, but improve marginally. From the University of Michigan’s January Surveys of Consumers: “While the overall improvement was small, it was broad based, seen across the income distribution, educational attainment, older and younger consumers, and Republicans and Democrats alike. However, national sentiment remains more than 20% below a year ago, as consumers continue to report pressures on their purchasing power stemming from high prices and the prospect of weakening labor markets. Aside from tariff policy, consumers do not appear to be connecting foreign developments to their views of the economy.”
💼 New unemployment insurance claims remain low, total ongoing claims decline. Initial claims for unemployment benefits rose marginally to 200,000 during the week ending Jan. 17, up from 199,000 the week prior. This metric remains at levels historically associated with economic growth.
🏠 Mortgage rates tick higher. According to Freddie Mac, the average 30-year fixed-rate mortgage rose to 6.09%, up from 6.06% last week: “With the economy improving and the average 30-year fixed-rate mortgage nearly a percentage point lower than last year, more homebuyers are entering the market. Buyers always should shop around for the best rate, as multiple quotes can potentially save them thousands.”
As of Q3, there were 148.3 million housing units in the U.S., of which 86.9 million were owner-occupied and about 40% were mortgage-free. Of those carrying mortgage debt, almost all have fixed-rate mortgages, and most of those mortgages have rates that were locked in before rates surged from 2021 lows. All of this is to say: Most homeowners are not particularly sensitive to the small weekly movements in home prices or mortgage rates.
👎 Activity survey signals growth. From S&P Global’s January U.S. PMI report: “The survey is signalling annualised GDP growth of 1.5% for both December and January, and a worryingly subdued rate of new business growth across both manufacturing and services adds further to signs that first quarter growth could disappoint. Jobs growth is meanwhile already disappointing, with near stagnant payroll numbers reported again in January, as businesses worry about taking on more staff in an environment of uncertainty, weak demand and high costs. Increased costs, widely blamed on tariffs, are again cited as a key driver of higher prices for both goods and services in January, meaning inflation and affordability remains a widespread concern among businesses.”
Actions speak louder than words: We are in an odd period, given that the hard economic data decoupled from the soft sentiment-oriented data. Consumer and business sentiment has been relatively poor, even as tangible consumer and business activity continues to grow and trend at record levels. From an investor’s perspective, what matters is that the hard economic data continues to hold up.
Think long-term: For now, there’s no reason to believe there’ll be a challenge that the economy and the markets won’t be able to overcome over time. The long game remains undefeated, and it’s a streak that long-term investors can expect to continue.
Here’s a roundup of some of TKer’s most talked-about paid and free newsletters about the stock market. All of the headlines are hyperlinked to the archived pieces.
The stock market can be an intimidating place: It’s real money on the line, there’s an overwhelming amount of information, and people have lost fortunes in it very quickly. But it’s also a place where thoughtful investors have long accumulated a lot of wealth. The primary difference between those two outlooks is related to misconceptions about the stock market that can lead people to make poor investment decisions.
Passive investing is a concept usually associated with buying and holding a fund that tracks an index. And no passive investment strategy has attracted as much attention as buying an S&P 500 index fund. However, the S&P 500 — an index of 500 of the largest U.S. companies — is anything but a static set of 500 stocks.
For investors, anything you can ever learn about a company matters only if it also tells you something about earnings. That’s because long-term moves in a stock can ultimately be explained by the underlying company’s earnings, expectations for earnings, and uncertainty about those expectations for earnings. Over time, the relationship between stock prices and earnings has a very tight statistical relationship.
Investors should always be mentally prepared for some big sell-offs in the stock market. It’s part of the deal when you invest in an asset class that is sensitive to the constant flow of good and bad news. Since 1950, the S&P 500 has seen an average annual max drawdown (i.e., the biggest intra-year sell-off) of 14%.
Every recession in history was different. And the range of stock performance around them varied greatly. There are two things worth noting. First, recessions have always been accompanied by a significant drawdown in stock prices. Second, the stock market bottomed and inflected upward long before recessions ended.
Since 1928, the S&P 500 has generated a positive total return more than 89% of the time over all five-year periods. Those are pretty good odds. When you extend the timeframe to 20 years, you’ll see that there’s never been a period where the S&P 500 didn’t generate a positive return.
While a strong dollar may be great news for Americans vacationing abroad and U.S. businesses importing goods from overseas, it’s a headwind for multinational U.S.-based corporations doing business in non-U.S. markets.
…you don't want to buy them when earnings are great, because what are they doing when their earnings are great? They go out and expand capacity. Three or four years later, there's overcapacity and they're losing money. What about when they're losing money? Well, then they’ve stopped building capacity. So three or four years later, capacity will have shrunk and their profit margins will be way up. So, you always have to sort of imagine the world the way it's going to be in 18 to 24 months as opposed to now. If you buy it now, you're buying into every single fad every single moment. Whereas if you envision the future, you're trying to imagine how that might be reflected differently in security prices.
Some event will come out of left field, and the market will go down, or the market will go up. Volatility will occur. Markets will continue to have these ups and downs. … Basic corporate profits have grown about 8% a year historically. So, corporate profits double about every nine years. The stock market ought to double about every nine years… The next 500 points, the next 600 points — I don’t know which way they’ll go… They’ll double again in eight or nine years after that. Because profits go up 8% a year, and stocks will follow. That's all there is to it.
Long ago, Sir Isaac Newton gave us three laws of motion, which were the work of genius. But Sir Isaac’s talents didn’t extend to investing: He lost a bundle in the South Sea Bubble, explaining later, “I can calculate the movement of the stars, but not the madness of men.” If he had not been traumatized by this loss, Sir Isaac might well have gone on to discover the Fourth Law of Motion: For investors as a whole, returns decrease as motion increases.
According to S&P Dow Jones Indices (SPDJI), 65% of U.S. large-cap equity fund managers underperformed the S&P 500 in 2024. As you stretch the time horizon, the numbers get even more dismal. Over three years, 85% underperformed. Over 10 years, 90% underperformed. And over 20 years, 92% underperformed. This 2023 performance follows 14 consecutive years in which the majority of fund managers in this category have lagged the index.
Even if you are a fund manager who generated industry-leading returns in one year, history says it’s an almost insurmountable task to stay on top consistently in subsequent years. According to S&P Dow Jones Indices, just 4.21% of all U.S. equity funds in the top half of performance during the first year were able to remain in the top during the four subsequent years. Only 2.42% of U.S. large-cap funds remained in the top half
SPDJI’s report also considered fund performance relative to their benchmarks over the past three years. Of 738 U.S. large-cap equity funds tracked by SPDJI, 50.68% beat the S&P 500 in 2022. Just 5.08% beat the S&P in the two years ending 2023. And only 2.14% of the funds beat the index over the three years ending in 2024.
Very few funds consistently beat their benchmarks over extended periods. (Source: SPDJI via TKer)
Picking stocks in an attempt to beat market averages is an incredibly challenging and sometimes money-losing effort. Most professional stock pickers aren’t able to do this consistently. One of the reasons for this is that most stocks don’t deliver above-average returns. According to S&P Dow Jones Indices, only 19% of the stocks in the S&P 500 outperformed the average stock’s return from 2001 to 2025. Over this period, the average return on an S&P 500 stock was 452%, while the median stock rose by just 59%.
