According to Goldman Sachs, signs that inflation has started to fall from its 40-year peak could be good news for stocks.

As a result, markets rose Friday a government report showed the pace of inflation slowedThere was a slight dip in April due to the fall of gas prices and other factors suggesting that there had been a cooling trend.

According to Goldman analysts, history shows that the market will respond positively to signs of inflation peaking.

According to Sharon Bell, an analyst team that included Sharon Bell and her colleagues in writing, “The market tends to fall in the run-up of the peak in headline inflation,” they wrote in a report. However, the market usually recovers after peak levels. There is more variability.

Twelve months after the 1951 peak, nine of 13 inflation runs saw market prices rise. A 33.2% rise from the March 1980 peak was the largest gain. The worst result was a 17.3% decrease from the January 2001 peak. That was when the dotcom bubble burst.

Goldman’s team stated that while the inflation peak might have been helpful, equities need additional support. This is especially true if investors are afraid of a steeper decline.

To boost market momentum, you need a strong economy and lower valuations.

These issues are a problem in today’s environment.

It economy contracted at 1.5% annualized rateStock market valuations fell significantly in the first quarter but are still above the 10-year average. Interest rates have been rising, while bond yields remain at their highest levels.

October 1990 was positive in all three regards and saw a 29.1% increase in the S&P 500 over the next year, a “very different set-up from the one we have today,” Goldman said.

Federal Reserve provided encouragement for markets during this week. Minutes from the policy meetingOfficials indicated earlier in the month that they would be willing to reconsider the pace at which interest rate increases are occurring later in the year. But, they also mentioned the possibility of rates moving into a “restrictive level” in an effort to slow down the economy.

Goldman strategists stated that the outlook for Europe and America is identical.

Goldman reiterated his positive outlook for European stocks that have strong balance sheets and high profit margins. These companies also benefit from increased capital expenditures as well as government investments. Despite the possibility of falling inflation, Goldman remains cautious about consumer stocks.