Inflation concerns are on the rise among investors after recent economic reports.
Despite investors worries, Goldman Sachs equity analysts maintain a positive outlook on stocks.
Here are 23 stocks with strong pricing power that can act as a hedge against inflation, according to the analysts.
The dominant theme across the markets right now is inflation.
Last week s data on consumer and wholesale inflation showed a dramatic increase in price pressures in April that exceeded most economists expectations and ignited concern among investors that the current low-rate environment might soon be coming to an end.
As a result, the major indexes spent most of the week in the red, and the S&P 500 hit five-week lows.
Inflation Expectations Increase Mildly
The market believes the high CPI readings in April and the next few months will be temporary. It’s not a contrarian opinion to bet inflation will fall. The reflation trade has become more popular than last year, but last year was an extreme example. You can’t anchor yourself to 2020 in which a bubble formed in innovation stocks. It’s best to take a longer term approach.
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As you can see from the chart below, Wednesday’s CPI report caused the 5 year forward breakeven inflation rate to rise sharply in the near term and rise slightly in the long term. Every high CPI report causes slight changes to long term expectations. We think each strong CPI report in the next few months will cause economists and investors to challenger their own views of long term inflation. That doesn’t mean the long term rate will actually change though. The pandemic low
Inflation is top-of-mind for investors after the CPI rose more than expected in April.
But according to Marko Papic, investors are misreading how the Fed will react.
He said the S&P 500 faces weak returns in the near-term partly because of this.
Members of the Federal Reserve s Federal Open Market Committee have been drilling their message into investors for several months now: They won t respond to a spike in inflation this year.
And yet, investors still don t believe them, according to Marko Papic, the chief strategist at Clocktower Group, which manages $1.5 billion in assets.
In an interview with Insider on Friday, Papic said investors are anticipating Fed intervention if inflation gets too hot this year. He pointed to the fact that the median investor expects the central bank to take a more hawkish stance on interest rates over the next two years, shown in the chart below.
Inflation rose more than expected in April, which spooked investors.
Bank of America s Savita Subramanian says active managers are ill-prepared for it.
She shared two trades for an inflationary environment.
Investors are getting a strong dose of inflation fears this week, as the consumer price index a key measure of inflation jumped more than expected in April.
Prices rose by 4.2% from last April and by 0.8% from March, both higher than economists were anticipating.
Stocks were down big because of the surprise. The Dow had its biggest daily drop since January, while the S&P 500 fell by as much as 3.4% and the tech-heavy Nasdaq was down by more than 4%.