We live in interesting times. Projecting what will happen in the year ahead is always difficult. I’m tempted to say, “The market will fluctuate,” and leave it at that. But I remain bullish — especially over the long term. I find the most comfort in approaching financial data from a different perspective, particularly when it comes to inflation and the long-term effects of recessions.

Inflation has remained exceptionally low over the past twelve years, which is notable considering the significant government deficits during the 2007 – 2009 recession. While the Federal Reserve often takes credit for this, I believe another explanation is more compelling. As the global economy expanded and poverty declined, the market for goods grew. This broader market — and the resulting increase in global competition — allowed manufacturers to reduce prices. Retail giants like Walmart, Costco, and Amazo…

Service-sector costs have also come down. So many services are now free or nearly free: streaming movies, phone calls, internet searches, and delivery.

Technology played a big role. One smartphone now replaces a camera, a map, a clock, a calculator, and more. Printers can now copy, scan, email, and fax — all while continuing to fall in price year after year.

If these factors keep inflation low, interest rates are likely to remain low as well. That’s a powerful support for stocks. Low rates make bonds and savings accounts less attractive while reducing corporate borrowing costs.

There’s another positive trend to consider: how companies respond to recessions. Economic downturns often force firms to become more efficient. These gains in efficiency help accelerate recovery and contribute to new market highs.

Taken together — low inflation, improved corporate efficiency, and broadly reasonable stock valuations — these trends bode well for the market.

We recognize that recessions cause real suffering for many individuals. But data shows that government programs like unemployment insurance and retraining assistance are far more effective in addressing that pain than policies that prevent companies from adjusting their workforces.

Katz Family Financial