Inflation: How Does it Affect Investment Stocks?

Inflation rates have been rising in big economies such as Brazil, Russia, the US and the UK throughout 2021. This will have a knock-on effect on the stockmarket, but some investment stocks may perform better than others.

Some economists fear a return to high inflation, the likes of which has not been seen for more than 40 years. And since the start of 2021, it has been rising steadily across the world.

If inflation continues to rise, what effect will it have on the stockmarket and your wealth?

When covid-19 sparked a global lockdown, markets plummeted. The pandemic disrupted global supply chains: production lines came to a standstill, shipping stalled and air freight were grounded.

But within five weeks something extraordinary happened. The S&P 500 had plummeted in March 2020 but it soon rallied and its value doubled over the next 18 months.

Governments took unprecedented steps to recharge their economies. In the US alone, the government has allocated more than $4 trillion dollars on stimulus funding. And, in a world of low interest rates, consumers look elsewhere for better returns on their investments.

Duke university in North Carolina recently published a paper looking
at historical returns of the stock market over the past 95 years. It focused on different US equity sectors when inflation moved above 5% — in late 2021, the rate in the US moved above 5.3%.

Of course, historical trends are never a guarantee of future performance, but the researchers found that across all sectors, energy stocks delivered the best positive annual returns.

Another interesting sector were Soft commodities, such as corn, wheat, fruit or livestock have also historically held—or increased—their stock prices during times of increased inflation. This is holding true today.

Then there are the less flashy, age-old stocks which typically offer steady but not spectacular growth rates.

These are known as value stocks.

We took a look at the top three growth stocks and the top three value stocks, based on index weight — according to the S&P Growth and Value Index.

We studied the relationship between stock price and inflation since 2007 when the rate of inflation moved above 2%. The price of these growth stocks tends to decrease more quickly than the price of the value stocks as the rate of inflation increases.

00:00 Inflation is rising across the world
01:30 How Covid-19 affected stock markets
02:17 How stock markets bounced back in 2020
04:06 A world of low interest rates
05:40 Psychology and inflation
06:35 When hyperinflation strikes
07:08 How different stocks react to higher inflation
09:40 How bank stocks react to higher inflation
10:30 How value and growth stocks react to higher inflation

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[thephoenix]

Really well done piece. Many of us are seeking answers on how to best protect ourselves should inflation turn out to be more permanent. This gives a great current and historical perspective. Thanks David!

[markcyrus]

Stocks or listed shares of stock in major bourses provides "this thing" which is like a trust fund. Diversified Investments of this "fund" creates "real value". Blue Chip shares of stock appreciates over time and can counter "inflation" That's why the Swiss Franc becomes a viable alternative for investors from overseas.

[AshtonGrace]

Is this a good time to buy stocks? I know everyone is saying stocks are at a discount and all, but just how long will It take for us to recover, obviously there are strategies to maneuver in this present market but these strategies doesn't come common to the average folk, or am I better off putting my money elsewhere?

[emile]

Nice content! Few years back i was assistant to a wealthy pen artist and within the short period i worked with him i observed that he had quite a chunk of investment everywhere, stocks, crypto, dividend investing to name a few, so he had revenues coming in from all angles. And in a year his worth doubled. With this i learned that the rich stay rich by investing.

[AddilynTuffin]

I want to learn how to trade after listening to a guy on radio talk about the importance of investing and how he made $460, 000 in 4 months from $160k. Somehow this video has helped shed light on some things, but I'm confused about the current market volatility, i'm open to ideas...

[michawrobel]

The pandemic did not cause inflation. Excessive QE did

[ismailibrahim]

Inflation is not a direct reason of the pandemic, it's the central bank reaction to save the stock market in my humble opinion.

[andrewwhitcomb]

The Dow Jones is NOT "30 of the highest performing companies." It's just thirty stocks that the Dow Jones considers to be representative of the total U.S. stock market.

[mayacho]

A weak dollar can signal an economic downturn, making me to ponder on what are the best possible ways to hedge against inflation, and I've overheard people say inflation is a money-eater thus worried about my savings around $200k.

[osamashawl]

We are already in the big crash, Inflation is a catastrophe. This CPI report is a colossal failure. To bring the housing market to a halt, the FED will have to pull all the stops. The unfortunate issue is that other markets are being decimated. If you want to stay green, you have to rely on a lot of diversification. Currently up 14% and being careful. Still a better deal than leaving it in a savings or checking account yielding 0-1 percent interest.

[mayacho]

I know it's possible, my sister always get 40K every week, I would appreciate if anyone could show me how to go about my trading journey, so i could do the same. Since there seems to be a lot of experts here.

[edjones]

This has been brewing for a while, I'm surprised it has taken as long as it has. You don't need an economics degree to know that if countries are printing money and giving it to people to stay at home and not work its going to cause huge inflation

[bluegoka]

00:56 _”The cause?”_ Money printing. It’s always money printing.

[hungarianguy]

You messed up. The research does not state Equity in energies, but commodities in energies. So energy commodities are what is valuable, not energy-producing companies. There is a long equity energy sector that only produces a yield of 1%.

[tombruigom]

What is your prediction on Gold?..Interesting article.

[thecorpooration]

How does one tell the difference between inflation resulting from the factors listed in this video, and the decreasing value of currencies themselves?

[donnyraytravis]

Anyone know which paper from Duke this video is reference?

[philshyu]

Ultimately, in the long run, businesses that provide goods and services IS how wealth is created. Without profitable businesses, we don't have much of an economy. During this period of rising inflation, I've been buying shares of the companies in sectors where I am concerned about the rising costs, such as utilities. But as this video suggests, we can't lump all stocks into the same category. Some traded companies just move money around without actually making anything. Some traded companies don't provide an essential good or service. I believe those ones will suffer.

[iVlainXXVIII]

Hi, I need answers
Does the delay of goods (stranded in ports) directly affects or a result of inflation too? If so, how many % (I accept an acceptable estimated rate increase) it will increase the prices after the covid pandemic is done? Anyone?

[Ruslan-ebhk]

Hello, do you think you should buy usd / cad, Canada will raise interest rates by 0.25