Experts say there are a few options for investors looking to hedge against rising prices.
“I don’t think this is transitory,” said Michelle Connell, owner of Portia Capital Management, referring to the term Fed chair Jerome Powell has used repeatedly when talking about how rising inflation will be a temporary phenomenon. “The Fed is probably going to have to raise rates sooner rather than later.”
And if that happens, Connell thinks investors would be wise to look at bank stocks, which stand to generate more interest income as loan rates go up, as well as sectors of the real estate market.
“Financials have more upside and some parts of real estate still look good,” she said, noting that real estate investment trusts (REITs) that own apartment buildings, data storage centers and cell phone towers can do well even if rates go up — since more people may look to rent as opposed to buy, and the federal government is set to spend more on infrastructure.
Stock slide presents an opportunity to buy the dip
But there are pockets of the stock market that may have been oversold in the past week due to inflation jitters.
Experts also said investors should start to buy in sectors of the stock market that have been laggards during the past few years.
“If you are worried about inflation, think internationally,” said Roger Hewins, president of wealth management firm Team Hewins. He said emerging market stocks that have trailed the broader market might hold up better than US stocks.
Be wary of bitcoin and bonds
Some crypto bulls are evangelizing about how bitcoin and other cryptocurrencies are like a new, digital gold. Bitcoin could be a good hedge, they contend, because unlike other major currencies, it is not backed by a central government.
But the trouble with that argument is that what’s happening in crypto land often seems very far removed from the real economy in the first place.
Bonds may not offer much protection either. Concerns about rising longer-term bond yields — even if the Federal Reserve leaves short-term rates near zero — threaten to wreak havoc on fixed income assets.
“Fixed income investors should be keeping a close eye on inflation,” she added. “If bond yields rise… bond holders could see price drops in parts of their portfolios that they thought were safe.”