What the data says about inflation, rates and equity markets: Insights from Denise Chisholm - May 28, 2026
Markets are being pulled in multiple directions, from shifting inflation expectations to evolving growth signals and changing rate dynamics. In that environment, Fidelity’s Director of Quantitative Market Strategy, Denise Chisholm, shared her insights on how these forces are interacting, and what the underlying data may be signaling for investors.
Here are some of the key points from her commentary.
Rethinking the link between oil and inflation
Oil price movements often dominate inflation discussions, but their broader impact may be more limited than commonly assumed. While energy prices can influence headline inflation, the effect on core inflation is far less consistent. Historically, oil price spikes have translated into higher core inflation less than half the time over a six-month period. Instead, higher oil prices tend to act more like a tax on consumers. The impact is typically concentrated in areas such as energy and transportation rather than spreading broadly across the economy. This dynamic also shapes how policymakers respond. Even during periods of sharp oil price increases, the likelihood of rate hikes has not consistently risen. Larger oil spikes have often coincided with lower odds of tightening, reflecting the drag on demand rather than persistent inflation.
Growth, not inflation, as the driver of rates
Interest rate movements are often viewed through an inflation lens, but historical patterns suggest growth plays a more important role. Stronger growth has more often been associated with a higher probability of rate hikes. When economic activity improves, the Federal Reserve has historically been more likely to adopt a more hawkish stance. Recent data points to a potential inflection. Durable goods orders have reached levels that historically occur only about a quarter of the time and have tended to signal further expansion in employment and earnings. Importantly, rising rates in this context are not necessarily a headwind for equities. When rate increases reflect stronger growth, markets have historically continued to perform, with equities showing above-average odds of gains.
Why stronger growth does not guarantee inflation
It may seem intuitive that faster growth leads to higher inflation, but the relationship is less predictable. Over long periods, the link between growth and inflation has been limited. When growth accelerates, inflation has been just as likely to remain stable as it is to increase. One reason is the role of supply. As demand rises, businesses often respond with increased production, investment and productivity improvements. This may help mitigate the effects of inflation. Capital spending cycles are a clear example. While investment supports economic expansion, it has more often been associated with disinflation as additional capacity comes online.
Oil supply dynamics and downside risk
Oil markets remain influenced by supply disruptions, but longer-term dynamics suggest a more balanced picture. Higher prices tend to encourage additional supply, as producers respond to improved economics. Over time, this response can help stabilize markets. There is also the possibility that supply is more available than expected. If conditions improve or production increases, prices could move lower, particularly if existing capacity comes back online. Taken together, this points to both upside and downside scenarios rather than a one-directional outcome.
Sector implications: where pressure and opportunity emerge
Energy prices do not affect all sectors equally. The impact tends to be concentrated, creating both challenges and opportunities across the market.
Denise’s view on sector sensitivity
- Most pressured: Consumer discretionary
Higher energy costs can weigh on consumers and compress margins. This sector has historically shown sensitivity to rising energy prices and has tended to underperform in those environments. If energy prices fall, the same sector has shown a higher probability of outperforming, supported by improving margins and consumer spending. - More resilient: Technology and select industrials
Some sectors have demonstrated stronger pricing power. Technology in particular has shown an ability to sustain margins even when input costs rise.
Potential for growth and market presence
Broader growth trends continue to support the outlook for earnings. Recent data indicates a broad-based improvement across durable goods categories, which could potentially reflect a recovery in manufacturing and investment. When growth is more evenly distributed, earnings expansion has historically been more durable. This type of backdrop has often been associated with longer economic cycles and sustained market performance. Technology remains a notable area within this environment. Despite concerns about rates, historical patterns suggest the sector has performed well when growth is strong, even if rates are rising.
Conclusion: A growth-led backdrop for markets
Current indicators suggest a market environment shaped more by growth than by inflation shocks. Current data suggests a trend of strengthening activity, particularly in manufacturing and investment-related areas. While the consumer remains important, growth does not need to be evenly distributed to support the broader economy. At the same time, the relationship between inflation, rates and market performance remains nuanced. Oil-driven price increases are not expected to translate into broad inflation on their own. Moderate rate increases tied to growth have historically been absorbed by markets. Taken together, these dynamics point to a backdrop where durable growth and earnings trends continue to play a central role in shaping market outcomes.
