Inflation and Stocks Are Both Up, and That’s Stirring Some Worries<br />But in the wake of this month’s correction, and the ensuing recovery in stock prices, some market experts are saying<br />that stocks can continue to rally even if interest rates and inflation rise, as they did Wednesday.<br />The Harvard economist Martin Feldstein, who has long studied the complex relationship among interest rates, inflation and stock prices, has been warning for months<br />that markets are highly vulnerable to rate increases and inflation.<br />It’s long been a truism that higher inflation and its close cousin, higher interest rates, are deadly for stock prices.<br />But if the Fed is forced to raise rates to ward off inflation, the risks of a recession — and lower earnings and stock prices — are much greater.<br />“When interest rates rise back to normal levels, share prices are also likely to revert to previous norms,” Mr. Feldstein told me this week.<br />Mr. Stack recently lowered the stock portion of his model portfolio to 72 percent<br />from 82 percent out of concern over high valuations and rising rates.
