So if deflation accelerates, it will be the ugliest and cruelest of worlds. Equity prices, certainly are the last liquid dog standing, would be vulnerable as the big dogs will be getting out.
The 2008 pattern remains intact though with less volatility . Seven years ago we were over 10% off of our May highs and today we are around 2% off of them. In 2008, the market began its next leg down into the second week of August and slowly sank through September and then fell apart.
If the worst of deflation can be avoided and a 4% to 5% top to bottom correction is all the S&P500 can manage, then the Fed will have saved the world. Any equities bloat created by zero interest rates policies will be absorbed even in a slowly climbing rate environment because equities will have provided real returns in a debt deleveraging world.
Despite the particular evils of inflation, it was always the middle classes way to participate in wealth creation. Deleveraging deflationary economies provided few opportunities to the middle and their major asset real estate becomes unsalable.
