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How to invest in higher inflation. Although inflation eats away at the spending power of the US dollar, there are ways for investors to position and potentially benefit from higher inflation.

  • Stocks historically have beaten inflation and we think value specifically could do well with higher inflation.
  • Commodities tend to do well in higher inflationary periods and a potentially weaker US dollar could be yet another tailwind.
  • Treasury Inflation-Protected Securities (TIPS) see increases in principal and raise interest payments when CPI increases.
  • Bank Loans have low duration and a floating interest rate, making them one area of fixed income which should do well in the face of higher inflation.

We will discuss these investments and more later today on the LPL Research blog.

Daily Insights

US equities open lower for a second straight session

  • The effects of inflation on the economic reopening effort remains a prevalent theme amongst market participants.
  • The S&P 500Nasdaq Composite, and Russell 2000 (US small cap) are each down more than 1% in early morning trading.
  • European markets are in the red with the Euro Stoxx 50 over 1.5% lower during midday trading.
  • Asian stocks finished mixed with the Nikkei (Japan) off by over 2% and the Shanghai Composite (China) down (.51%).

Up to 21. That’s how many states have now cancelled pandemic-era unemployment programs.

  • Indiana, Texas, and Oklahoma joined the growing list of states to stop paying the extra $300/week for unemployment, among other benefits.
  • With last month’s disappointing nonfarm payrolls, many states have concluded with the economy opening up, more incentives are needed for workers to look for employment.
  • The Chamber of Commerce concluded that 1 in 4 people receiving benefits made more staying unemployed than at their previous job.

The latest on infrastructure. Both sides continue to look for a bipartisan deal.

  • Republicans were expected to present a plan earlier this week, but so far that hasn’t happened.
  • President Biden originally proposed a $2.25 trillion deal, while Republicans countered with a $568 billion deal. We continue to expect a final deal in the range of between $1.0 and $1.5 trillion.
  • Not surprisingly, hot button issues like taxes and climate provisions are sticking points.

Fed minutes on tap. Later today at 2pm ET the release of the latest Federal Open Market Committee (FOMC) meeting notes will be released.

  • This is widely expected to be a non-event, as Chairperson Powell at the press conference maintained the need for ‘patience.’
  • Although this meeting took place before the recent spike in inflation, we will be watching to see any internal discussions or outright disagreement over inflation.
  • The Fed has made it clear they aren’t yet looking to taper the $120/month bond purchases, but again, internal discussions could be interesting here.
  • For more of our thoughts on tapering, but sure to read yesterday’s blog What Is “Tapering” and Why is It Important?

Technical update

S&P 500 trend consolidating but 50-day moving average still looks like strong support. The S&P 500 continues to show signs of healthy consolidation despite yesterday’s decline. Measures of acceleration have fallen and realized volatility has climbed modestly, often signs of a tired trend, but support at the 50-day moving average, currently at about 4076 and persistently upward sloping, still signals an upward bias.

Economy Picking Up Speed

LPL Research explains why inflation is making headlines and why investors should not be overly concerned. Learn more in this week’s Weekly Market Commentary

Inflation, Inflation, Inflation

On the LPL Market Signals podcast, Chief Market Strategist Ryan Detrick and Equity Strategist Jeff Buchbinder dive into the hotter than expected recent inflation data and explains why massive inflation down the road is unlikely.


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