Tags: deflation

Deflation Seen Lifting Stocks

By Dan Weil   |   Monday, 10 Aug 2009 10:01 AM

Deflation may be bad for the economy overall, but it sure isn’t hurting stock prices.

And with all the benefits deflation provides companies, in the form of lower costs, some experts say it will continue to boost stocks.

Wholesale price plunged 4.6 percent last quarter, outpacing the drop in consumer prices by the most in seven years, according to data compiled by Bloomberg.

That gap indicates how much pricing power companies have, and it’s more than 100 percent higher than its six-decade average.

The gap is also the widest since September 2002, a month before stocks rebounded from a 2 1/2-year bear market and began a huge rally.

LPL Financial, Manning & Napier Advisors Inc., and Pioneer Investment Management say the recent drop in commodities prices will add to companies’ profits and push stocks even higher.

“Input costs have come down dramatically, and it’s going to be one of the real engines that fuels this recovery,” Burt White, chief investment officer at LPL, tells Bloomberg.

“You could easily see an explosion in earnings that surprises and drives this market much, much higher.”

He says the S&P 500 could “easily” reach 1,200 by year-end, up 20 percent from Monday’s close.

Others agree.

"There are increasing signs that not only have we come back from the precipice and then stabilized, but we're poised to start to grow, and the market is celebrating that," Jim Awad, managing director of Zephyr Management, told Reuters.

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Deflation may be bad for the economy overall, but it sure isn’t hurting stock prices.And with all the benefits deflation provides companies, in the form of lower costs, some experts say it will continue to boost stocks.Wholesale price plunged 4.6 percent last quarter,...
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