Displaying items by tag: inflation
If you’ve had a bit more concern about the economy and your financial portfolio recently, then you’re far from alone. With ongoing market tumult and surging inflation, it’s reasonable to wonder what the future holds for your finances.
Fortunately, there are ways to help hedge against inflation. Adding commodity exposure to your portfolio can help diversify an existing portfolio of stocks and bonds, and potentially lower risk, while helping to boost return potential—particularly, during periods of rising inflation.
The market is seeing some of the highest volatility since the pandemic and before that, you have to go back to the taper tantrum, but how should investors respond? While the most obvious answer is to ‘buy the dip’, the question remains where. Investors should look to industries whose fundamentals haven’t shifted in the most recent months or are less susceptible to the ongoing volatility shifts. This value tilt means leaning towards financials and commodities. Moreover, investors should steer clear of those exactly susceptible to current volatility spikes. Technology and emerging markets are easy stay-aways because inflationary pressures are going to hurt growth stocks and supply constraints will bottle up developing economies for the foreseeable future.
Finsum: More advanced hedging strategies should be considered in equity markets given the volatility, but still tilt toward value.
The IMF has warned investors that there are growing concerns about an emerging market debt crisis. There is anxiety that sluggish growth, higher interest rates, and surging inflation will hurt developing economies much more severely than developed ones. They will be disproportionately affected because highly indebted countries will have a dip in their investment and suffocate their currencies. These concerns aren’t new and emerged at the start of the pandemic, but this swell seems different. The Fed responded by pumping trillions into the economy in 2020 and they are doing the exact opposite now. Additionally, war and other risks are heightened now with Russia-Ukraine’s escalation.
Finsum: Investors searching for yield should be wary of emerging market bond funds given unprecedented risk levels.
Goldman raised the odds of a recession to over one-third in the next two years. The tightening cycle and rate hikes are causing waves in markets and the Fed could bump the Federal Funds Rate eight times this year. Overall economic health in the G10 helps mitigate the possibility of a recession, but it's still a possibility. Experts are saying that the Fed has a narrow path for a soft landing if they want inflation to come down to 2% and keep unemployment from rising. There are signs that the economy is beginning to weaken as consumer confidence is wavering. Still, the stock market doesn’t seem to pricing in a recession, however, the experts on Wallstreet and financial services are beginning to prepare.
Finsum: Look to the yield curve for recession predictions its the best sign and its beginning to warn investors.
Oil has been dominating headlines but natural gas prices skyrocketed to a t 13 year high on the back of Russia’s war on Ukraine. To add to the fodder temperature forecasts for spring are remarkably low which means homes will be utilizing more natural gas in order heat homes. Overall prices are $8.05 per million British thermal units and are up 108% through the year already. Financial markets aren’t sure this price increase is permanent and Citi has only raised their end price target to $4.60 by the end of 2022.
Finsum: Keep an eye on natural gas bonds as just like oil surging, it could mean good things for companies ability to repay.