Those 5% must come from somewhere.
Either from a growing economy: Good for the stock market.
Or from freshly printed money: Also good for the stock market.
The "risk free" interest rate is not really risk free. You do not get back 2023 Dollars. You get back future Dollars, which are devalued by a currently unknown factor.
As bond rates increased, companies went bankrupt because they couldn't afford loans needed to sustain themselves. When the US Government is willing to pay 10%, 15%, or more on debt, that means that "normies" will have to pay 20% or 25% on mortgages or company credit.
Companies who are used to 8% debt or normal people used to 5% mortgages will suddenly find 15% mortgages or 20%+ debt impossible to manage and go bankrupt. This cascades and hampers the economy.
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Everyone complains about US Government debt while ignoring the fact that most people and companies are levered up the wazoo. You think US Government is bad? How much money is typical Silicon Valley company making, and how much is their debt load?
Will (random-unicorn) be able to survive higher interest rates? Even the fear of others going bankrupt will cause banks to hoard money for themselves (too risky to lend it out to others), especially because cash now earns 5% to 6% safely. Why lend to risky companies who'll just go bankrupt when you can lend to US Government more safely?
Either from a growing economy: Good for the stock market.
But you did not address my second point
Or from freshly printed money: Also good for the stock market.
How does this factor into your model? Not only has interest rates spiked to 5%, but dollars are getting erased from existence.
Additionally, I prefer to look at M0.
Answer: the economy is bigger than just the money printer. If the overall economy is suffering, then you can still have deflation even if the money printer is going.
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Can you point to a period after 2008 when inflation finally happened? Answer: not until 2020+, after COVID19. Well past the era of your earlier example.
And sure, COVID19 and other issues will not be fully figured out until a decade from now. Your assumptions that money printing causes inflation are very one-sided and ignores greater situations that happen in the economy. There's more to economics than just monetary supply.
And again: Look at decades, not at years. Assets are way more expensive these days than they were in 2008. The S&P 500 more than tripled. The Nasdaq 100 increased more than 7-fold.
The economy is like a large swimming pool. If an elephant jumps into one side of the pool (increase of M0), it won't lift the water level on the other side (whatever prices you look at) in a linear way immediately. It will cause complex waves. But when the dust settles, you see higher prices.
Here's another one: 1970s were correlated with growing monetary base (M0, M2, whatever) and incredible amounts of inflation. And yet, the stock market and other assets declined.
These opinions of yours aren't really from economic data or analysis, but instead from vibes from some kind of blogger / website out there. The permabears or whatnot. I've seen opinions like yours all over the internet, but consistently they fall apart when the actual economic data is looked upon, as we are doing here. The only argument is to ignore economic data (like you're attempting to do with CPI).
Maybe they are from before 2008 when printing money was considered a "slight background noise" and not a doubling every few years like we see now?
It also should be mentioned that 5% is actually just above inflation so that yield is nominal and not actual returns. Inflation (Assuming at 3.7% going forward) that 5% is more like 1.3% real return on money.
Worth reminding though the stock market IS NOT the economy.
Investment firms and other orgs with large amounts of money, seeking what they always seek. More money. As I understand it, banks invested heavily in bonds which give under 2% return, but because of the cheap 5% bonds, they can't even dump them to capitalize on the 5%, because nobody wants to buy the old 2%.