Home Knightsbridge Insights Inflation is Welcome in the Financial Markets

Inflation is Welcome in the Financial Markets

by Paul Ebeling

#inflation #sstocks #value #growth #opportunity


“Inflation on no 1’s screen maybe 5 yrs ago as a lead concern, to being at the absolute forefront all of the month of May“– Paul Ebeling

We have seen an acceleration in earnings in Q-1, coupled with massive monetary and fiscal stimulus is really enough fuel to really drive the market due North.

That being the case, we welcome a bit of inflation into the US economy, and core inflation could exceed 3.5% to 4% in the short-run.

The Big Q: Where do we settle post the runup?

The Big A: We are going to be watching the data to see just how permanent some of these inflation forces are and how they affect the capital market outlook and then draw our conclusions.

A Key bit of economic data comes Thursday will be on new weekly jobless claims, which are expected to have fallen for a 4th wk running and to another VirusCasedemic-era low.

Then comes the 2nd estimate of Q-1 GDP from the Bureau of Economic Analysis will likely show that US GDP rose by 6.5%, a tick above the 6.4% reported prior, and with core personal consumption expenditures rising 2.3% over Q-4 of Y 2020.

With the economic recovery still under way, we suggest that cyclical and value stocks are a good area of opportunity for investors, even as tech stocks continue to outperform. 

LTN contributing economist Bruce WD Barren says, “High inflation can be good, as it can stimulate some job growth. But it can also impact corporate profits through higher input costs. This causes corporations to worry about the future and stop hiring, reducing the standard of living of individuals, especially those on fixed incomes.

For investors, all this can be confusing, since inflation appears to impact the economy and stock prices, but not at the same rate. Because there is no one good answer, individual investors must sift through the confusion to make wise decisions on how to invest in periods of inflation. Different groups of stocks seem to perform better during periods of high inflation.

We see more opportunity as the economic expands in value stocks in the United States, but also outside of the United States. 

Have a healthy day, Keep the Faith!

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