The topic of inflation is far from off the table: even according to the latest reports from the US central bank, investors fear falling prices. Bernstein strategist Inigo Fraser Jenkins now names a few stocks that investors can use to protect themselves against the risk of inflation.
• Prospect of interest rate hike weighs on stock market
• Debt borrowing increased sharply due to pandemic
• Focus on companies with extended liabilities
After the Fed meeting: Fears of inflation remain the dominant market theme
After we have before, inflation concerns dominate the market. Although the US Federal Reserve recently reaffirmed its low interest rate strategy , which is intended to reduce the economic consequences of the corona crisis, an end to this approach is already in sight. The monetary authorities want to implement the interest rate turnaround by 2023, although the following year had previously been assumed. Until then, two rate hikes are possible – even though inflation rates are currently climbing higher than originally expected. After the Fed results were announced, it wasn’t just the major stock indices that stumbled. The US government bonds popular in the previous months, which lured investors away from the stock market with rising yields , were also under pressure.
Bernstein analyst advises investors to exercise caution
It is now important for investors to position themselves correctly in a market environment characterised by inflation, advises Inigo Fraser Jenkins from Bernstein Research. “There is probably no bigger macro issue, both tactically and strategically, than inflation and what this means for portfolios,” the analyst told “MarketWatch”. A possible strategy to hedge against inflation could be a broad lineup. The expert advises a portfolio of stocks, real assets, gold and also crypto currencies such as Bitcoin . This could better absorb slumps in certain asset classes and limit overall losses.
High debt borrowing in the corona crisis
Another possibility, according to the Bernstein analyst and his team of strategists, is to take a very close look at the companies whose shares you want to buy. Some companies took on debt in the wake of the pandemic – sometimes at record speed. While some corporations need the additional funds to avert the consequences of the corona crisis and possibly even secure their existence, others benefit from low interest rates or even extend the deadlines for repaying their existing liabilities, so Fraser Jenkins and his colleagues continue.
Long-term companies with “more attractive valuations”
According to the market expert, this could be worthwhile for companies that have been able to postpone the maturity of their debt thanks to low interest rates, have issued fixed-income debt and can continue to operate while they meet their financial obligations. “A basket of US long-dated stocks outperformed a short-dated basket by seven percent this year and traded at more attractive valuations than their short-dated peers,” stated Fraser Jenkins and his team. Therefore, investors should be careful to buy stocks of companies with long debt maturities. This could act as an effective hedge against inflation.
The experts recommend these stocks
A total of 80 such companies are on the list of market experts, as MarketWatch reports. Some of the better known include tech giants Apple , Alphabet , Amazon, and Microsoft . But other industry giants such as the video game developer Electronic Arts and the chip manufacturers NVIDIA , Texas Instruments and QUALCOMM made it onto the list. From the telecommunications sector, the team of experts around Fraser Jenkins recommends AT&T and Verizon to MarketWatch .
But retailers and manufacturers of consumer products were also able to join in: the home improvement chain Home Depot is represented, as is Target , McDonald’s , Starbucks , Nike , Kraft Heinz , Estée Lauder and Coca-Cola . Johnson & Johnson , Pfizer , Gilead Sciences , Regeneron and Biogen were also able to convince the experts from the health sector . The Kansas City Southern and Union Pacific railroad companies as well as the defense companies Lockheed Martin , Northrop Grumman and Raytheon Technologies complete the list.
Even if the analyses by the Bernstein experts have shown that the shares of the companies mentioned have recently performed better than their competitors, this is by no means a guarantee for comprehensive protection against inflation, continues Fraser Jenkins. “There is no one solution.”