Size of the text
Despite the fact that worries have subsided, inflation has not.
Getty Images/Scott Olson)
Who’s concerned about inflation these days? The market doesn’t appear to be, and neither does the general public. As a result, now is an excellent time to start betting on continued inflation. Everyone seemed to be concerned about out-of-control inflation only a few days ago. Those anxieties are dissipating now. Inflation is now priced into the five-year Treasury Inflation Protected Securities (TIPS) at 2.49 percent, down from 2.72 percent in May, according to a Bank of America study released last month. Even Google searches for the term “inflation” have dropped by 80% since May 12 and are even lower than they were a year ago.
Inflation, on the other hand, has not abated. Inflation indices are coming in hotter than expected almost everywhere. It had been there since
General Mills is a company that produces cereals.
(ticker: GIS) earnings, the firm said that it would raise prices to compensate growing input costs. It was also evident in the Institute for Supply Management manufacturing survey, in which component prices jumped to 92.1 in June, the highest level since 1979. “For obvious reasons, readings above 90 in a diffusion gauge with a maximum of 100 are quite rare,” writes Michael Shaoul, CEO of Marketfield Asset Management. “While it is possible that the peak inflation shock is ‘transitory,’ including an overshoot for a wide range of prices, this does not rule out the possibility that it is also a turning point in the broader trend of inflation, interrupting the multi-decade trend toward lower price indexes.” To accept the potential for inflation to run hotter for at least another year or two, you don’t have to believe in a 1970s-style price increase or even that inflation would remain low due to demographic difficulties, writes JPMorgan strategist Eduardo Lecubarri. “While some (including ourselves) contend that the current surge in inflation will be temporary in the context of a structurally low interest-rate environment, others feel we are in the early innings of a long-term inflation rise,” he continues. “Whichever the case, it appears reasonable to expect inflation to stay elevated relative to recent experience for at least the balance of 2021 and possibly part of 2022.”
As a result, JPMorgan looked for small- and mid-cap equities that outperformed during the financial crisis’ rising inflation periods. Kronos Worldwide (ticker: KRO), Crane International (ticker: CRU), and others are among them (CR),
EnPro Industries is a company that specializes in manufacturing.
(NPO),
Casella Waste Systems is a company that specializes in waste management.
(CWST),
NL Industries is a company based in the Netherlands.
Exponent (NL) (EXPO),
Stamps.com
Atrion (STMP) (ATRI),
Neogen
(NEOG), World Acceptance (WRLD), Netgear (NTGR), and Coherent (NEOG) are a few examples (COHR). In the end, though, it makes no difference how investors obtain inflation exposure as long as they do. “The possibility of diminishing economic growth amid potentially permanent inflation is extremely real,” argues Tom Essaye of The Seven’s Report. “And right now, that is one of the biggest risks to the larger markets.” Even though it appears to be gone. Ben Levisohn can be reached at Ben.Levisohn@barrons.com./n
Read More
