Stocks to Watch for When Inflation Rises to 30-Year Highs

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The rate of inflation in the US continues to rise, with the consumer price index, released last week by the Bureau of Labor Statistics, up 6.2% year over year in October. This is the fastest annual increase in over 30 years, and a 5.4% increase in September. There are a number of factors driving rising inflation, including higher energy and food prices, strong demand and supply chain problems following the opening of Covid-19, and a severe labor shortage that is driving up wages. The core CPI, which excludes energy and food, also rose 4.6% yoy, its highest level since August 1991. With inflation rates actually moving higher in recent months, there are concerns that inflation may not temporary is as previously expected.

While stocks generally outperform bonds during times of high inflation, our topic is Inflation stocks includes companies in the banking, insurance, consumer staples, and energy sectors that are more likely to benefit from high inflation. The theme has returned about 25% since the start of the year, roughly on par with the S&P 500. Exxon Mobil is the strongest performer, up 55% since the beginning of the year. US bank The stock has also done well, up around 30% so far this year. On the other hand, Procter & Gamble was the weakest performer, whose stock is only about 5% higher since the start of the year.

[8/30/2021] Stocks to choose from when US inflation hits near 30-year highs

US inflation continues to rise, with the Fed’s preferred inflation index, the US Consumer Spending Price Index (PCE), ending at 4.2% in July, its highest level in nearly 30 years reached. In addition, core prices, which exclude volatile items like food and energy, rose 3.6%. The numbers are due to increasing demand for goods and services that have outpaced supply chains’ ability to keep up after the Covid-19 lockdowns. While the central bank is optimistic that inflation will come back, it finds it will stop its $ 120 billion monthly asset purchases.

However, we assume that inflation could remain slightly above historical levels for some time to come. For example, personal savings have skyrocketed from the pandemic, and the continuation of the low interest rate environment over the next two years could also lead to higher prices for goods and services. Our subject on Inflation stocks includes companies in the banking, insurance, consumer staples, and energy sectors that may remain stable or potentially benefit from high inflation. The theme has returned about 15% since the start of the year, while the S&P 500 is up about 18%. Within our topic, Exxon Mobil is the strongest performer, up 28% since the beginning of the year. Chubb The stock has also done well, up around 20% so far this year. On the other hand, Procter & Gamble was the weakest performer, whose stock is only up about 4% year-to-date.

[7/16/2021] How equity investors can benefit from soaring US inflation

US inflation numbers for June accelerated to the fastest pace since 2008 as economic recovery continues to pick up after the Covid-19 lockdowns. According to the Ministry of Labor, the consumer price index rose 5.4% year-over-year, while the core price index, which excludes food and energy, rose 4.5% year-on-year. The price increases have been driven by increasing demand for goods and services that have exceeded the ability of businesses to keep pace. Although supply-side bottlenecks should be ironed out in the coming quarters, factors such as significant economic funding, an increase in the US private savings rate and a continuation of the low interest rate environment over the next two years could lead to inflationary developments remaining high in the near future.

So how should equity investors act in the current inflationary environment? Our subject on Inflation stocks includes companies in the banking, insurance, consumer staples, and energy sectors that may remain stable or potentially benefit from high inflation. The theme has returned around 16% since the start of the year, roughly on par with the S&P 500. However, it has underperformed since late 2019 and has remained roughly unchanged compared to the S&P 500, which is up around 35%. Oil and gas major Exxon Mobil was the strongest performer on our topic and has increased by around 43% since the start of the year. On the other hand, Procter & Gamble has underperformed, with the share remaining more or less unchanged.

[6/17/2021] Stocks play with rising inflation

US inflation tends to be higher as ample liquidity, increasing demand for the Covid-19 lockdowns, and supply-side restrictions put pressure on prices. On Wednesday, the Federal Reserve significantly raised its inflation expectations for 2021, forecasting that consumer spending prices – their preferred measure of inflation – could rise 3.4% this year, a full percentage point above their March forecast of 2.4% . The central bank made no changes to its aggressive bond-buying program, including advising that rates will remain near 0% despite signaling two rate hikes in 2023.

So how should equity investors deal with the current inflationary environment and the prospect of higher interest rates? Our subject on Inflation stocks includes stocks from the banking, insurance, consumer staples and energy sectors that could remain stable or potentially benefit from higher inflation rates. The topic has developed above average with a return of around 17% in the course of the year so far, compared to a return of only around 13% for the S&P 500. Since the end of 2019, however, it has developed below average and remains compared to the S&P 500, which is up increased about 31%. Oil and gas major Exxon Mobil was the strongest performer on our topic and increased by about 56% since the beginning of the year. On the other hand, Procter & Gamble has underperformed, with the stock falling around 5% this year.

[5/27/2021] Rising inflation theme

Inflation tends to be higher, driven by expansionary monetary policies by central banks, pent-up demand for commodities after the Coivd-19 lockdowns, actions by companies to replenish or build up inventories, and also due to significant supply-side restrictions. Inflation now seems to stay here, with the 10-year breakeven inflation rate, which captures the expected inflation rates over the next ten years at around 2.4%, the highest level since 2013. [1]

So how should equity investors act in the current inflationary environment? Our subject on Stocks play with rising inflation includes stocks that remain stable or may even benefit from higher inflation rates. The topic has outperformed the year to date with a return of around 18% compared to a return of only around 12% for the S&P 500. However, since the end of 2019 it has only had a return of around 1% compared to 30% for S&P 500. The theme mainly includes stocks in the banking, insurance, consumer staples and energy sectors that will benefit from higher inflation in the longer term. We excluded sectors such as metals, building materials and semiconductor manufacturing, which did exceptionally well when it initially reopened but are about to peak. Here is a little more about the stocks and sectors in our topic.

Bank stocks: Banks make money on the net interest margin, which is essentially the difference between the interest rates on deposits and the interest the bank gets on loans. Now, higher inflation usually leads to rising interest rates, which in turn can help banks increase their net interest income and profits. Regardless of this, the banks also benefit from the increased credit card spending by consumers. Banks in our topic include City group and US bank: – who have a higher level of exposure to retail banking. Citi stock is up 26% year-to-date, while U.S. bancorp is up 28%.

Insurance portfolios: Insurance companies typically invest excess underwriting capital to generate interest income. Now, higher inflation, which leads to higher interest rates, can also help increase their profitability. Company like The travel company and Chubb, which are more reliant on investment income than their insurance peers, should benefit. Travelers stock is up about 12% this year while Chubb is up 8%.

Consumer goods: Consumer stocks should also hold their own in the face of higher inflation. The demand for these companies remains stable because they are essential products. Also, these companies can pass higher costs on to customers. Our topic includes tobacco giants Altria Group, which is up 21% this year, food and beverage industry PepsiCo which is roughly flat, and consumer goods players Procter & Gamble, which has decreased by about 1%.

Oil and gas: Energy stocks have had a good track record in times of rising consumer prices. While expanding economies should bode well for oil demand and prices, large oil companies also have high operational leverage that helps them generate higher profits as revenues grow. Our topics include the oil and gas stage Exxon Mobil, which has grown a whopping 43% this year, and Chevron, which is up about 23%.

Our topic Capex cycle stocks includes heavy equipment manufacturers, electrical systems suppliers, automation solution providers, and semiconductor manufacturing players who will benefit from increased corporate and government capital expenditures.

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