It’s because companies in the S&P 500 have pricing power, meaning they can raise their prices to outpace inflation.
Which means if their revenue growth was going to be X regardless of inflation, it’ll still be X in an inflationary environment if you adjust for inflation.
It’s really that simple. The stock market growth always outpaces CPI growth, unless Big Business is under some other kind of threat.
Since this round of inflation came from printing money, not from extrinsic shocks (although there was a brief energy shock two years ago), you’d expect the S&P 500 to outperform CPI, which it did. It’s not ^too^ mysterious.
While I get the market effects you're talking about, it still hinges on CPI as a goal post. My point was that there's a surprisingly large number of people that completely distrust CPI or any other data coming out of the federal government.
And honestly I do understand many of the technical concerns with CPI. Dig into how the calculations are made and how much room they have to manipulate numbers between changing the basket of goods and adjusting prices to account for various factors that they deem explanatory for a portion of price changes and the CPI begins to look a lot less reliable as a long term metric.
Which means if their revenue growth was going to be X regardless of inflation, it’ll still be X in an inflationary environment if you adjust for inflation.
It’s really that simple. The stock market growth always outpaces CPI growth, unless Big Business is under some other kind of threat.
Since this round of inflation came from printing money, not from extrinsic shocks (although there was a brief energy shock two years ago), you’d expect the S&P 500 to outperform CPI, which it did. It’s not ^too^ mysterious.