One of the principal reasons for the panicked selling in the major stock markets is stated as some fear of rising inflation. In actuality, the current rate of inflation is lower than the federal government would prefer. Rates of unemployment are at historic lows. Business is good for most sectors of the economy.
Yet, stock markets are going through a period of adjustment, which is interpreted to mean a downward price change of 10 percent or more.
Stocks are considered a hedge against inflation.
As dollars buy less, stock prices can rise. Owning bonds during inflation can be problematic because the dollars behind the bonds lose value during inflation.
If you are fearful of rising inflation, why would you start selling your best investment hedge against it?
Some believe inflation may be harmful to business and that is a reason to sell stocks.
This reason would not make sense. We find ourselves riding out a stock market adjustment with ideal business conditions and low inflation rates because an influential group of investors fears monetary inflation is on the way.
They begin selling their best hedge against it, converting it to cash, which will be what is to be inflated.
Stuart Young, Sandy