One of the common questions we are getting is “why is inflation rising?” and “how to profit from inflation.” So we wrote an article on “How to Profit from Inflation: Tips, Sectors & 3 Free Stock Picks.” We have also released a list of inflation stocks to paid subscribers that we think should outperform in a rising interest rate environment.
We hope you enjoy it and please feel free to forward it to your friends. Here is an excerpt from the ABS Advisor Market Intelligence Report.
“Be careful what you which for, you may get it” was on the markets’ minds last week, after U.S., Eurozone, and Chinese inflation metrics for April came in much hotter than expected.
Key Drivers for the Week of May 17, 2021
TIP – This is a 1-minute brief bullet-point summary. It is a tool that gives investors and financial a fast and simple list of what to watch for and talking points for the week.
- Inflation worries and growth optimism keep the global markets choppy
- Central banker views of “transitory” price pressures ease some investor concerns
- Covid still problematic in Asia, UK PM Johnson warned over India variant
- U.S. monitors May Empire State, Philly Fed indexes, and housing reports
- FOMC minutes unlikely to surprise, meeting held prior to jobs and inflation shocks
- Canada inflation figures in the spotlight with CPI, retail sales, housing starts due
- China’s slate includes production, retail sales, fixed investment
- Japan Q1 GDP, CPI, PPI, tertiary index, production, trade due
- Australia monitors employment, retail sales; RBA minutes
- Eurozone PMI, GDP, final CPI, trade; German PPI and PMI
- UK employment, earnings, CPI, retail sales, confidence, and PMIs due
Despite central banker warnings, the markets were initially shocked. Longer-dated yields surged, which prompted strong risk-off moves, sinking equities. We noticed that the 10 Year yield rate crossed the 30 Year in March. This could be another indication of rising interest rates.
But by the end of the week, the shock value wore off and the markets regained their poise as investors took central bankers at their word that the jump in prices will prove “transitory.”
Against that background, price data will be at a premium globally this week. In the U.S., the price components of the manufacturing sentiment surveys will be of interest, along with home price figures. The FOMC minutes are due, but should not alter the view that policy is on hold for “some time.” In the Eurozone, final April CPI and German PPI highlight. In the UK, PM Johnson warned the new India Covid variant could delay reopenings. In Asia, regional CPIs and PPIs are slated but attention will also be worsening virus situation, especially in hard-hit India.
The FOMC in particular has not only been rooting for a rise in inflation but has actively participated in helping boost prices via its aggressively accommodative policies. And recent data suggests they may have gotten their wish, and then some. U.S. CPI climbed 0.8% in April and the core surged 0.9%, much hotter than expected.
It was the biggest increase in the headline since 2009 and the largest pop in the core since 1981. As cautioned by the Fed, the 12-month headline index spiked to a 4.2% y/y clip (the biggest since September 2008), and the core rate accelerated to 3.0% y/y (ties the biggest since 1995).
Transportation costs were the major culprit, surging 2.% thanks to a 10.0% jump in used car prices (which should be temporary), but various other factors (that may not be temporary) contributed, including increases in commodity, housing, and services prices.
While the Fed has attributed the climb in y/y inflation largely to “base effects,” but the monthly gains also have accelerated in 2021, suggesting an updraft in inflation even if the y/y inflation spike can be partly discounted. This monthly trend will be closely monitored, especially to see if price pressures become embedded in inflation expectations.
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