Inflation Cools Down: Which Stocks Will Benefit, and Which Wont

best stocks for inflation
best stocks for inflation

But how do all these moving parts affect the average American’s investments and retirement savings? Seven financial planners tell Fortune that these are steps people can take to mitigate the effects of inflation on their investments. Fidelity advisors are licensed with Fidelity Personal and Workplace Advisors LLC , a registered investment adviser, and registered with Fidelity Brokerage Services LLC , a registered broker-dealer. Whether a Fidelity advisor provides advisory services through FPWA for a fee or brokerage services through FBS will depend on the products and services you choose. The value of your investment will fluctuate over time, and you may gain or lose money. CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position.

Higher interest rates encourage people to save money instead of borrowing and spending money . As consumers spend less, companies have to lower their prices or at least raise them more slowly to encourage demand. Investors are optimistic that inflation will continue falling in the coming months. This would be a positive development for the economy and stock market, because it means the Federal Reserve won’t have to keep raising its interest rates as aggressively to bring it down. However, not all investors think inflation will go away so quickly.

best stocks for inflation

While commodities don’t pay dividends or represent any underlying business, they are uncorrelated to the traditional asset classes of stocks and bonds and tend to move in an unrelated direction. Growth stocks, on the other hand, tend to be more sensitive to changes in interest rates — a common monetary policy response to inflation. Over the past decade, when inflation has been conspicuously absent, growth stocks enjoyed a banner period. In practice, the impact of inflation on earnings will vary by economic sector and its ability to pass on higher input costs to consumers.

Market sentiment:

The problem is that the market will often discount those future cash flows at a higher interest rate when inflation rises to compensate for the fact they’re worth less in today’s money. All else being equal, the higher the level of inflation, the greater the discount rate2 applied to earnings and, therefore, the lower the price-to-earnings (P/E) ratio3 investors are prepared to pay . Exchange traded funds are not individual stocks, but they may be a good option during inflationary times. ETFs are comprised of a group of stocks that are selected to mirror the performance of a specific index. The key to choosing an ETF is to find an index that outperforms the general market, and then find an ETF that tracks that index. Inflation is on the rise, making it a challenging time for stocks.

Are stocks a good way to beat inflation?

But in the long run, they have beaten inflation, so a lot of people claim they're an inflation hedge, but [that claim is the result of confusion]. In the long run, stocks beat inflation, but they do it because of the equity risk premium.

The company has the highest dividend yield on our list and has increased its dividend steadily for over a decade. During times of high inflation like now, consumers cut back on discretionary spending. But plenty of staples are much harder for people to stop buying. Owning the stock of companies that produce staple products and services is one of the best ways to beat inflation. “Generally, clients should have a portfolio that can withstand some inflation,” says Seth Mullikin, a CFP and founder of North Carolina–based Lattice Financial.

US STOCKS-Futures slip on rate-hike worries ahead of payrolls data

With supply-demand factors in play, XOM continues to have a solid outlook. Fixed income refers to assets and securities that bear fixed cash flows for investors, such as fixed rate interest or dividends. However, the inflation tail should never wag the investment dog. If you have specific goals or timetables for your investment plan, don’t swerve from them.

Which stocks go down during inflation?

High inflation has historically correlated with lower returns on equities. Value stocks tends to perform better than growth stocks in high inflation periods, and growth stocks tend to perform better during low inflation.

On the other hand, exchange-traded funds investing in commodity futures will tend to underperform the price of a rising commodity, because their futures positions must be rolled as they expire. For consumers, inflation means higher prices on goods and services, and a loss of purchasing power if their income fails to keep up. For investors, it means moving some of their money to assets that benefit from inflation or at least keep up with its pace. Shares of CF Industries have risen to be sure, up nearly 18% year-over-year.

Slowing Inflation Isn’t Good for All Stocks. The Challenge That Tesla and Others Could Be Facing.

Still, if stocks are valued by a multiple of earnings, an 18% increase in the share price when compared to the 1,200% increase in earnings might be construed as a mismatch. Those investors with a more cautious sentiment might feel that CF’s the best micro currency trading platforms fortunes are tied to commodities, and commodities prices are subject to large swings up and large swings down. The bull case, however, is that the stock does not reflect the earnings growth and there’s more upside potential in the shares.

best stocks for inflation

High inflation hurts investors in a couple of different ways, according to financial advisors. But it also affects some stocks less than others, and it can even be good for certain sectors of the market. The stock performance is at odds with the financial performance of the company. For the nine months ended Sept. 25, earnings per share were $3.73 versus a loss for the prior comparable period. Investors can reasonably infer that Devon management remains bullish about the future.

Crypto Rallies Amid Banking Crisis

The Federal Reserve typically targets a low and stable rate of inflation of about 2%, which can signify a growing economy. But inflation can creep into the double digits as a result of economic shocks. In summary, if the current inflationary uptick continues, equity prices could stay volatile. But some sectors may absorb the impact better and others are even poised to benefit. On average, such firms posted an average real return of 5.9% in high and rising inflation environments. But the likelihood of this happening was worse than a coin toss—they beat inflation only 44% of the time, considerably less than many other sectors.

GNW has a forward P/E ratio of 3.92x, a -58.19% difference to the sector, and a trailing EV/EBITDA of 2.30x, showcasing its substantial discount. September’s red-hot inflation shock and recession fears will likely prompt investors to find stocks that can battle losses. Get Started Learn how you can make more money with IBD’s investing tools, top-performing stock lists, and educational content.

  • When evaluating offers, please review the financial institution’s Terms and Conditions.
  • Here’s what advisors say about investing during periods of high inflation, and how to find the best stocks for inflation.
  • Low and stable inflation can be an indicator of a growing economy.
  • Alcoa has the dual benefit of being a mining company and a consumer staples company, which is another sector that tends to perform well when inflation is high.
  • Stocks that are positively affected by rising inflation are usually for products and services that people need to buy despite high prices .

The iShares Core S&P Small-Cap ETF is still lagging larger stocks and is down 19% so far the past year. Personal consumption expenditures is a measure of consumer spending and includes all goods and services bought by U.S. households. Treasury Inflation-Protected Securities are bonds that offset the effects of inflation by adjusting the value of the principal. The most common economic reports used to measure inflation are the Consumer Price Index , the Producer Price Index , and the Personal Consumption Expenditures Price Index. The PCE Price Index is the Federal Reserve’s preferred inflation gauge. “The income portion is usually more consistent than the market fluctuations,” Moore says.

Top 9 Best-Performing Stocks: March 2023

If you haven’t checked it out already, you can read The Best Assets To Own In Order To Hedge Your Portfolio Against Inflation here. To see the impact of this imbalance, look no further than CF Industries’ most recent quarterly report. For the nine months ended Sept. 30, revenues more than doubled to $8.6 billion, but earnings per share were up twelvefold from 98 cents for the year-ago period to $12.04 for the most recent period. While BDX’s dividend is one of the lowest on the list, it has steadily raised the payout for more than a decade. Sales and EPS are expected to be strong next year, growing 5.9% and 11.6%, respectively. Analysts expect AEE’s sales and earnings to grow 4.3% and 7.3%, respectively, in 2023.

best stocks for inflation

NerdWallet does not offer advisory or brokerage services, nor does it recommend or advise investors to buy or sell particular stocks, securities or other investments. This creates a lot of uncertainty in the poultry business, and, by extension, Pilgrim’s Pride. Still, longer-term trends favor poultry, and that’s one reason why PPC remains one of the best inflation-proof stocks.

More On MarketWatch

Its articles, interactive tools and other content are provided to you for free, as self-help tools and for informational purposes only. NerdWallet does not and cannot guarantee the accuracy or applicability of any information in regard to your individual circumstances. Examples are hypothetical, and we encourage you to seek personalized advice from qualified professionals regarding specific investment issues. Our estimates are based on past market performance, and past performance is not a guarantee of future performance. Cash on hand is nearly five times the current portion of long-term debt, and cash from operations for the last fiscal year was nearly double capital expenditures. Supply has been constricted by sanctions against Russia and Belarus, two of the leading global producers of fertilizers.

But, according to the authors, this year’s report should also serve as an important reminder that stocks were never an inflation hedge. “When inflation was exceedingly low, in periods of deflation, bonds did quite well. Marsh, who previously served as a dean at the school, has been a consultant to financial services firms, and was part of the team that designed, among other things, the FTSE 100 Share Index. Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes.

What stocks do best during inflation?

  • Mortgage providers.
  • Communications.
  • IT (Information Technology stocks)
  • Growth stocks.
  • Consumer discretionary businesses.

Get a weekly email of our pros’ current thinking about financial markets, investing strategies, and personal finance. Regardless of company earnings or economic growth, a tech recovery may be delayed if inflation remains high. CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely. Business Of Sports If the only thing you know about sports is who wins and who loses, you are missing the highest stakes action of all.

Who will benefit from inflation?

Agricultural companies also benefit from inflation-driven higher prices. So agricultural stock investors can take advantage of rising price levels and a higher profit margin since the higher production costs are passed on to consumers.