Exploring the Relationship Between Inflation and Market Sector Performance Over the Past 40 Years

Inflation is a significant factor affecting financial markets and economic performance. Over the past four decades, periods of high and low inflation have influenced market sectors in various ways. This article will briefly examine the history of inflation, discuss market sectors that have performed well or poorly during high inflation, and touch upon sector performance in the years following high inflation. The information presented is based on studies done by Fidelity and Vanguard in the last ten years.

Inflation and Market Sectors: A Historical Perspective

A 2017 study by Fidelity Investments analyzed the performance of different stock market sectors in relation to inflation from 1962 to 2016 [1]. The research showed that during high inflation periods, energy, materials, and consumer staples sectors typically outperformed others. Conversely, technology, healthcare, and consumer discretionary sectors demonstrated the lowest correlation with inflation.

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Vanguard’s 2015 research paper examined the impact of inflation on various asset classes from 1970 to 2014 [2]. The study found that stocks generally outperformed bonds and cash during periods of high inflation. However, sector performance could vary substantially depending on the economic environment and other factors.

Factors Influencing Sector Performance During High Inflation

Energy and materials sectors tend to benefit from rising prices, leading to increased revenues and higher profit margins. In contrast, technology and healthcare companies often have higher fixed costs, resulting in margin pressure during inflationary periods.

Post-Inflation Sector Performance

In the years following high inflation, some sectors recover more quickly than others. Financials and technology sectors may experience growth as interest rates stabilize and borrowing costs decrease. Nonetheless, individual company performance within each sector can vary widely, and past trends might not predict future outcomes.


It is important to note that Deep Blue Financial has non-revenue relationships with both Vanguard and Fidelity.

The past 40 years have demonstrated that inflation can significantly impact market sectors. By understanding the relationship between inflation and sector performance, investors can make informed decisions about their financial futures. While it is essential to consider historical trends, it is also crucial to remember that no specific investment advice is provided in this article.


Adam Faust, Founder & Chief Investment Strategist

Deep Blue Financial, LLC

[1] Fidelity Investments. (2017). How Different Sectors React to Inflation. Retrieved from https://www.fidelity.com/learning-center/trading-investing/markets-sectors/how-sectors-react-to-inflation

[2] Vanguard. (2015). The Impact of Inflation on Investment Returns. Retrieved from https://www.vanguard.com/pdf/ISGPMI.pdf

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