If Inflation Is Beaten, Wall Street Is Missing the Risk to Stocks

According to accepted knowledge among stock bulls, prices will soar once the Federal Reserve succeeds in combating inflation.

However, the cessation of rising consumer prices might bring on still more unfavourable news.

A tiny group of researchers has expressed concern about the possibility of a risk to earnings should the effort to control inflation be successful.

In particular, the compression on margins that can happen if a metric called corporate operational leverage suffers in a situation when sales level off.

The indicator is a gauge of how much a company's fixed and variable expenses differ from one another.

After the peak of inflation, it can become negative when a business's expenses are still high and it is unable to balance them by raising prices.


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