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US stock market fears inflation will trigger recession

Investors fear with good reason that out-of-control inflation will trigger a recession, as I warned in a June 19 analysis (“Fed starts to signal recession fears”).

Inflation almost always leads to recession, because it destroys consumer budgets and corporate profit margins. Except for the mild 1990 recession, every US economic downturn in the past fifty years began with an inflationary squeeze on profit margins.

The usual suspects in the financial press are blaming Monday’s rout on the spread of the Delta variant of Covid-19. But the three-day average of new Covid cases in the US as of July 18 was below 25,000, less than a tenth of the January 8 peak of over 300,000.