University of Michigan expected annual inflation correlates 0.76 with next-year CPI inflation (R² 0.58) but 0.90 with current inflation; monthly changes do not predict SPY or TLT next-month returns (Jan 1978–Apr 2024; SPY/TLT Jul 2002–Apr 2024; in-sample).
A subscriber noted and asked: "Michigan (at one point) claimed that the inflation expectations part of their survey of consumers was predictive. That was from a paper long ago. I wonder if it is still true." To investigate, we relate monthly "Expected Changes in Prices" (expected annual inflation) from the monthly University of Michigan Survey of Consumers and actual U.S. inflation data based on the monthly non-seasonally adjusted consumer price index (U.S. city average, All items). The University of Michigan releases final survey data near the end of the measured month. We consider two relationships:
Expected annual inflation versus one-year hence actual annual inflation.
Monthly change in expected annual inflation versus monthly change in actual annual inflation.
As a separate (investor-oriented) test, we relate monthly change in expected annual inflation to next-month total returns for SPDR S&P 500 ETF Trust (SPY) and iShares 20+ Year Treasury Bond ETF (TLT). Using monthly survey/inflation data since January 1978 (limited by survey data) and monthly SPY and TLT total returns since July 2002 (limited by TLT), all through April 2024, we find that:
Yield Curve as a Stock Market Indicator Premium10-year T-note minus 3-month T-bill spread timing (monthly; SPY to cash when spread is over 1 SD below average) underperformed buy-and-hold SPY (CAGR 9.8%…
Growth-inflation Regimes and Asset Class Returns PremiumClaude-generated charts of annual SPY, TLT, VNQ, GLD and DBC returns across four growth-inflation regimes show no obvious patterns; stagflation favored TLT and GLD…
BTC Interactions with GLD, CPI and EFFR PremiumDoes bitcoin (BTC) return exhibit any exploitable leading or lagging roles with respect to gold (SPDR Gold Shares - GLD) return, change in the…
Recent Interactions of Asset Classes with Inflation (CPI) PremiumQuarterly change in NSA all-items CPI correlates negatively with ETF returns two to three quarters later for multiple asset classes, with long-term Treasuries and…
Testing Wilshire 5000/GDP as Stock Market Predictor PremiumW5000/GDP level and its changes (quarterly, 2- and 5-year average change, slopes) show small, mostly negative correlations with future Wilshire 5000 returns up to…
