Inflation

Susan Jung |
Categories

Have you noticed prices are rising everywhere you look? That is a sure sign that inflation is here, at least for the time being.

We believe inflation will continue to march forward until supply chains can catch up for producing goods needed for consumers and businesses. Oil prices have fallen sharply from the recent high and that should be helpful in terms of mitigating increased input cost for businesses and retail costs for consumers.

We have already adjusted portfolios on the assumption that inflation would be an ongoing experience in 2022. However, we think it is important not to overreact because inflation will likely moderate once reopening occurs on a global basis from the Covid pandemic crisis.

We have positioned portfolios with fixed income strategies as follows:

  • Lower duration than the average bond market.
  • Slightly reduced credit quality to capture additional yield.
  • Added alternative assets such as dividend paying stocks that provide income streams without much interest rate risk. 

We think this is the right approach to take.

The following chart indicates why interest rates have been rising. GDP growth is booming.

Source: https://tradingeconomics.com/united-states/gdp-growth-annual   

It's important to keep in mind that while strong GDP growth creates inflation, it also can increase corporate earnings and it does suggest that US businesses are healthier than they were a year ago in the middle of the pandemic. Long-term, this is a positive for US economic prospects. That tends to be a positive for markets.

 

Disclosures:

Inflation is the rate at which the value of a currency is falling and, consequently, the general level of prices for goods and services is rising.

The opinions expressed herein are provided for informational purposes only and are not intended as investment advice. All investments involve risk, including loss of principal invested. Past performance does not guarantee future performance. Individual client accounts may vary. Although the information provided to you on this site is obtained or compiled from sources we believe to be reliable, Destination Wealth Management cannot and does not guarantee the accuracy, validity, timeliness or completeness of any information or data made available to you for any particular purpose. Any links to other websites are used at your own risk.