Morningstar Partner: History Shows the Markets Beat Inflation

Janeesa Hollingshead, Executive Editor, Wealth Solutions Report

Morningstar Partner Financial Fitness Group Says Inflation Problems Are Short-Term, History Demonstrates in the Long-Term Staying Invested Is Always the Smart Move

Few natural landmarks in North America can stake a claim to fame like the Old Faithful Geyser at Yellowstone National Park. Unlike other landmarks that display scenic beauty alone, this one adds a mathematical element that gives it the name “faithful” – it faithfully erupts along predictable patterns within a small range of variation and has done so since records of its eruptions began in 1870. 

Past performance is no indication of future results

It’s always possible that Old Faithful will retire tomorrow – or descend into unpredictable randomness like most geysers. As we like to say in the financial industry, “past performance is no indication of future results.” 

But it keeps erupting, and with over 150 years and a million eruptions on record, an observer might reasonably expect it to continue its mathematical rhythms for generations after us.

95 Years of Data

Markets always rebound (so far)

A long-standing partner of Morningstar, Financial Fitness Group (FFG) has collected 95 years of data on equity markets, inflation and many other parameters – going back to before the Great Depression – on the Morningstar Andex Chart.  

No matter how strong the temporary fluctuations, financial markets have always rebounded and self-corrected over the long-term. FFG’s data demonstrates this core concept as part of its interactive financial wellness educational content for financial service providers, financial institutions, advisors, government agencies and corporations. The material serves to maximize investor engagement, beneficial behaviors and financial knowledge.

Tricia Rothschild, Board Member, Financial Fitness Group

Tricia Rothschild, a Board Member at FFG and former Chief Product Officer at Morningstar, spent 26 years at Morningstar as an analyst and software product business leader. 

We spent time with Rothschild to learn more about FFG’s historical data and the relationship between inflation and markets.

WSR: Financial Fitness Group tracks data going back 95 years. In that data, what is the storyline that develops if you examine the relationship between inflation and the financial markets?

Inflation raises the price of loans

Rothschild: Over time the stock market’s growth dramatically outpaces inflation’s growth – as the Growth of $1 graph in the Morningstar Andex Chart illustrates, using the Ibbotson SBBI inflation data and U.S. Large Stock Total Return Index. From 1926 to 2021, $1 would equal $16 today after inflation – in other words, the same basket of goods that cost $1 in 1926 costs $16 today. The same $1 invested in large-cap stocks would be worth $14,086 today.

In the short-term, the relationship between inflation and the markets tends to be inverse for many reasons. For example, high inflation reduces consumer spending power, which can lower company profits and negatively impact stocks. Additionally, high inflation often prompts the Federal Reserve to raise interest rates, which increases the price of borrowing money and makes corporations less likely to take loans. 

As the economy slows and fears of recession rise, many investors sell their positions, worsening already falling stock prices. This exact sort of cycle happened in the early 1980s as the Andex Chart illustrates. 

Inflation spiked at roughly 15% in 1980 – causing the Fed to increase interest rates in August 1980 to reduce inflation. This caused the economy to slow, with two recessions occurring in 1980 and 1981. Despite these recessions, the economy continued to grow in the long run, with stocks showcasing some of their highest returns post-recession. 

WSR: Given the historical relationships just examined, what would you say to advisors and their clients about the current inflationary environment?

Rothschild: Geopolitical tensions, inflation and rising interest rates are just a few of the pressures facing investors. The complexities of today’s market can make it difficult for advisors to keep clients informed and educated on why it’s essential to stay invested. 

Inflation happened then, too

By using tools like the Morningstar Andex Chart, advisors can show wary investors that there have been periods of high inflation in the past, but they have all come to pass. For example, the Andex Chart shows how inflation spiked numerous times since 1926 – it spiked at over 10% in 1941, 1947 and 1974. Yet, economic growth continued, and inflation eventually returned to normal levels. 

Don’t panic, it’s just a bump!

Looking at the bigger picture, times like these are bumps in the road, and it’s important not to panic and make rash decisions. Advisors can use the Andex Chart to show investors how to plan their investments carefully and how staying invested for the long-term through challenging markets is essential.

WSR: How does this interaction between inflation and financial markets demonstrate the concept of the economy and financial markets as essentially self-correcting and resilient?

Rothschild: When you look at a chart like the Andex, you can see that everything is cyclical in the economy. It shows a 95-year outlook of how tough times – specifically high-inflationary periods like the one we are in now – always pass, and that sometimes the most significant economic gains come after times of financial crisis. 

The market ebbs and flows with expansions and contractions, and the length and prosperity of the expansions minimize the effect of downturns on the long-term economy. 

When revisiting the recessions of the early 1980s, there were 20 months between December 1980 – July 1982 when large-cap stocks fell by a total of 16.5%, according to the Ibbotson SBBI U.S. Large Stock Total Return Index. Yet, they recovered to their pre-downturn peak in just three months (August 1982 – October 1982)! 

While the market may not always recover so quickly, history has shown that over time, assets increase in value in aggregate. In today’s market, inflation concerns have been significant, which is why the Fed has implemented a series of interest rate hikes. Although recession fears are concerning, the Andex Chart illustrates why staying invested and weathering the storm will be fruitful for investors.

Janeesa Hollingshead, Executive Editor at Wealth Solutions Report, can be reached at


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