CPI surged 4.2% in April from the previous years, representing the largest year-over-year inflation appreciation since the summer of 2008. Compared to March, April illustrated a 0.8% increase in consumer prices as the long-anticipated pricing pressures finally start to hit the fan, and this is just the beginning.
The magnitude of monetary & fiscal stimulus infused into the pandemic-ridden economy combined with a massive level of pent-up demand has created an environment where high inflation is inevitable. The question is, how high will it go and how long will it last?
Federal Reserve Chair, Jerome Powell, has stuck with his guns on the "transitory" nature of this inflationary period that is just beginning to take off. The markets seem to be puzzled by what transitory inflation really means. Does this mean a few months, a few quarters, a few years? Jerome Powell has been perhaps the most dovish chair in Federal Reserve history, and he is prepared to let inflation run, but he is not stupid. There is a level of inflation where it becomes destructive to the economy, and once we reach that point, he will be forced to utilize some hawkish levers to control it.
The markets are currently operating under the assumption that crazy inflation will force the Fed's hand to taper its balance sheet and push the Fed Funds rate up sooner than anticipated (the balance sheet tapering/roll-off happens first). This is why we are seeing significant valuation multiple contractions in high growth names over the last few weeks. The denominator in their valuation models is rising.
Now it is time to reposition your portfolio for this inflationary period, and I provide some of my favorite picks for this rising price environment.
Stocks I Discuss:
Teledyne Technologies TDY, Equinix EQIX, Freeport-MCMoRan FCX, and SPDR Energy ETF XLE.
Zacks' Top Picks to Cash in on Artificial Intelligence
In 2021, this world-changing technology is projected to generate $327.5 billion in revenue. Now Shark Tank star and billionaire investor Mark Cuban says AI will create ""the world's first trillionaires."" Zacks' urgent special report reveals 3 AI picks investors need to know about today.
See 3 Artificial Intelligence Stocks With Extreme Upside Potential>>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Equinix, Inc. (EQIX) : Free Stock Analysis Report
FreeportMcMoRan Inc. (FCX) : Free Stock Analysis Report
SPDR-EGY SELS (XLE): ETF Research Reports
Teledyne Technologies Incorporated (TDY) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research