Do Stocks Protect Against Inflation? Evidence from S&P 500 Returns and U.S. Inflation, 1983–2025
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This study examines whether U.S. stock returns move with inflation, a question at the heart of the Fisher hypothesis and of the common belief that equities protect purchasing power. Using 43 annual observations from 1983 to 2025, I relate S&P 500 total returns (dividends reinvested) to December-to-December U.S. consumer price inflation. I estimate ordinary least squares regressions for nominal and real returns with Newey–West standard errors, and I add non-parametric tests, an expected versus unexpected inflation decomposition, inflation-regime comparisons, sub-period estimates, and outlier exclusions. Average annual returns were 13.36% in nominal terms and 10.24% in real terms, while inflation averaged 2.84%. Inflation shows no statistically significant relationship with nominal returns (slope = 0.29, p = .868) or with real returns (slope = −0.71, p = .682), and it explains less than 1% of the variation in either. The estimates are too imprecise to reject a zero relationship or a one-for-one hedge (p = .691). The only visible pattern is weaker real returns in the four years with inflation of 4.5% or more (3.58% versus 10.93%), but that difference is not statistically significant. In this sample, annual inflation is not a reliable guide to annual stock returns: equities cannot be counted on as a short-run inflation hedge, but they are not shown to be systematically harmed by moderate inflation either.
Keywords
Fisher Hypothesis, Inflation, Inflation Hedge, Real Returns, S&P 500, Stock Returns