If you’re concerned about inflation, you’re not alone. “High and rising inflation has justly become the key preoccupation of investors,” J.P. Morgan strategists, led by Dubravko Lakos-Bujas, wrote in a commentary.
“It is affecting consumer spending, business outlook, politics and, most importantly, the direction of monetary policy. While we expect the cyclical recovery to continue, … we acknowledge that the path of future inflation is uncertain.”
Consumer prices soared 7.5% in the 12 months through January. While J.P. Morgan anticipates the consumer price index will slide to 3.9% by year-end, that’s almost double the Federal Reserve’s long-term target, and it assumes the Fed’s policy tightening doesn’t cause a recession. Given uncertainty in the economy, “the risk of policy error has increased significantly,” the strategists said.
They created a list of stocks that are likely to outperform the market and a list likely to underperform when inflation fears or expectations are on the rise.
The stocks are screened partly on the basis of their correlation with the yield curve, the U.S. dollar inflation swap forward, the U.S. breakeven rate and the S&P GSCI commodity index.
Among the stocks on the outperformers list are Bank Of America (BAC), Boeing (BA), Exxon Mobil (XOM), mining company Freeport-McMoRan (FCX), General Electric (GE), American Airlines (AAL), and Avis Budget (CAR).
Among the stocks on the underperformers list are Microsoft (MSFT), pharmaceutical company Moderna (MRNA), Walmart (WMT), Johnson & Johnson (JNJ), Verizon Communications (VZ), Procter & Gamble (PG) and video meeting platform Zoom Video Communications (ZM).
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