Sow the wind, Reap the whirlwind: An Inflation Update (September 23, 2022)

Inflation has taken center stage, in markets, and in policy makers' minds, for much of 2022. For much of the year, the market has been trying to play catch up with inflation, with expectations running behind actual inflation, and prices adjusting, as a consequence. In this session, I pull together material that you might have already seen in my three earlier sessions this year on inflation, and update the numbers for an eventful summer. In short, expected inflation continues to rise, pushing up interest rates and creating havoc in currency markets, as first order effects. As inflation has risen, risk capital has moved to the sidelines, and stayed there, and risk premiums are up in both stock and bond markets. Taking stock in September 2022, with a recession looming, I value the S&P 500 index, and find it to be valued to reflect a gloomy future. Whether you find stocks a bargain or not will depend, in large part, on whether your views of the future of the economy and how inflation plays out are more upbeat or downbeat than market expectations.

[henrymitchell]

As the stock market goes through this bear market phase of declining prices, it is not surprising to see newbie investors get worried about their portfolios declining in value. If you have invested in stocks of fundamentally sound businesses at undervalued prices, you have done a great job as an investor and should have zero worries. Over time, they will always rise in value and prices will keep making new highs in time.

[hortonfisher]

Professor, I’m a big fan. In fact, your videos were one of the reasons NYU stood out as an MBA program. I’ve been accepted to Stern’s MBA part time, will be looking forward to taking a class with you while we’re in a recession.

[AR-gors]

Anytime I listen to a lecture of Prof. Damodaran I always feel greatly indebted to him. Thank you very much Professor

[LtSCS]

High and volatile inflation corrodes economies and markets from the inside out, destroying faith in currencies and making investors and businesses behave in dysfunctional ways. Thanks for your knowledge sharing Professor.

[myfinancefoundations]

This was amazing! I read your books in business school but this is the most refreshing thing I've ever seen!

[herokorai]

Professor, I really appreciate these updates. Gives us clear perspective and breaks down the macro and how it impacts valuation :) please don't stop doing these videos.

[nanahuang]

Professor, good to see you back! You look great! In fact, handsome indeed! As always, super insight!

[ferrarialim]

Prof's analysis cuts through all the noise and BS in youtube. Thanks for your sharing!

[sumeetvalrani]

Thank you for you vides. It would be amazing to get an update on the Facebook, google, Apple and Micorsoft valuations. Going to try my self

[lubie_gielde]

Amazing content! Thank you very much profesor

[ManOfSteel]

can you also review and valuate nifty and bank nifty as they are moving in opposite to us markets!

[diamondlion]

Expectations are coming down from the highs already, with commodities, freight rates, housing, ppi etc all leading indicators going down the trend is clear, inflation will come down and dramatically so in late 2022 through the next few years. The fed will have room to slow rates below their high range and begin to lower sooner than expected. Wages are up, but nowhere even close to spiral territory. This coupled with low unemployment and moderating inflation will prevent large drops in earnings.

[felreizmeshinca]

Thank you professor, it as indeed an insightful share.

[Mark.remarking]

Dr Damodaran, thank you very much for the insightful break down and your estimates and thoughts. I did get a bit lost with a few of the terms, and the charts are a bit small for these old eyes.. screenshots will be my salvation. Cheers

[nebojsascepanovic]

Professor, valuation is a craft, but you are a scientist.

[shivkuma]

Professor, in past recessions, have the dip in earnings been followed by earnings growing back to a prior trend line? Or will it be structurally depressed? I.e. is the 15% haircut a 1-2 year phenomena historically, followed by back to trend behaviors and lesser effect on terminal value or does it tend to be persistently lower ?

[sujoydalal]

Very useful to get real world analysis of changing interest rate and how it effects valuation. Thank you sir.

[andrewshen]

For expected earnings for the SPX are you taking the direct analyst estimates for S&P only or the aggregate of all the underlying? I suspect S&P earnings estimates aren’t refreshed often

[EJ-lduc]

Great content. I wonder how the upcoming QT will impact the valuation.

[grenjith]

Thank you. watched all the earlier sessions on inflation. Was waiting for this one and finally here it is.