The Impact of Inflation on the U.S. Stock Market After the COVID-19 Pandemic

Willem Thorbecke

IJFS, 2025, vol. 13, issue 1, 1-20

Abstract: Inflation remained quiescent for several decades and then surged in 2021 and 2022. Inflation subsequently fell in 2023 and 2024. This paper investigates how the rise and fall in inflation after 2019 affected the U.S. stock market. To do this, it estimates a fully specified multi-factor model that measures the exposure of 54 assets to inflation, monetary policy, and other macroeconomic variables over the 1994 to 2019 period. This paper then uses the inflation betas to investigate how investors’ perceptions of inflation changed between 2020 and 2024. The results indicate that concerns about inflation roiled the stock market over this period. The Fed’s anti-inflationary policies whipsawed markets even more. These findings highlight the dangers that arise when monetary policy allows inflation to accelerate.

Keywords: inflation; risk premia; stock returns; monetary and fiscal policy; American Rescue Plan Act; multi-factor models (search for similar items in EconPapers)
JEL-codes: F2 F3 F41 F42 G1 G2 G3 (search for similar items in EconPapers)
Date: 2025
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Working Paper: The Impact of Inflation on the U.S. Stock Market after the COVID-19 Pandemic (2024)
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