Don't come here. Come here again. I'm going to inflate
An operation is as fierce as a tiger, and the rise and fall depends on the Federal Reserve.
There is a problem that haunts my mind all the time. Damou, like Sister Wood and even the Federal Reserve (most officials), subjectively believes that inflation in the United States is short-term and fleeting; In this case, you don't have to panic if you continue to hold growth stocks. As mentioned before, there is no longer a long story here. However, there is a key problem to be considered. The question is:
WHAT IF, these people ARE DEAD WRONG?
That is to say, in case (not in case, really in case, you don't have to consider it), inflation continues, what should we do with our portfolio of US stocks?
According to history, moderate inflation usually benefits "equity assets" ("equity assets" is the forced name of "stock", just like calling pork black gold),Because moderate inflation is often a sign of economic growthIn 2008, the company's profits rose, and the stock price naturally took off.But if moderate inflation deteriorates into hard-core inflation,If the economy is overheated and inflation is soaring, the stock market may not be bloody but also stormy.
From the historical data of a certain period of US stocks (1973-2000), as long as inflation grows below 3% (we define this figure as "moderate inflation"), equity assets can outperform inflation in 90% of cases; But if it exceeds 3% and continues to grow, the return on stock investment will start to roll the dice. Therefore, regardless of deflation (deflation is the worst), inflation above 3% and rising continuously is not friendly to the stock market.
(Data are taken from 1973 to 2000, US CPI data and MSCI USA Index (US Large and Medium-sized Companies Index), and the research comes from SCHRODERS INVESTMENT)
It can also be seen from the above figure that when inflation is below 3%-4%, the relationship between inflation and the overall valuation multiple of stocks, the so-called scatter plot is just like a shotgun, and there is no law at all; However, if it exceeds 4% and reaches a relatively high level, although it cannot be said that it is completely linear, it can basically be seen that high inflation will bring about low valuation.
However, at the extreme, if hyperinflation comes (defined as cumulative inflation exceeding 100% within three years),At this time, you don't have to panic too much when you hold shares. It is the people who hold coins who panic.The most famous hyperinflation in history is the Weimar Republic, when the stock market basically stood side by side with inflation; Israel also experienced hyperinflation in the 1980sIn case of hyperinflation, the stock market, like Grandma Xiang's bag, must soar, because in essence, the local currency is plummeting.
(The performance of Israeli stock price (red line) and Israeli inflation (grey line) during hyperinflation in the 1980s, source: SG Cross Asset Research)
Of course, the self-proclaimed Fed should not let hyperinflation happen; In the face of inflation or even hyperinflation, the conclusion is to hold shares instead of US dollars, but the question is what shares to hold.
Logically, fighting inflation is essentially fighting a monetary phenomenon, so you choose companies that can raise prices when costs increase.That is, the so-called company with pricing powerPricing power itself means that you have the ability to raise your income and keep up with or even beat inflation. For example, the so-called big brand name brand on the consumer side, nature, although inflation is good, I will pull the price of products (services) all the way anyway. Therefore, we can pay attention to it. In the past year, we have seen Apple, Microsoft, LV and so on, all of which have gone up well. (Because the market expects high inflation to continue).
However, with the idea of pricing power, you must have the ability to select stocks, that is, you must have the vision of choosing Chu Ke-liang among a bunch of cobblers. It's also a big brand name. If you accidentally step on a Nokia brand mine,If you buy this stock, you need to cure it for a lifetime. In fact, as the consumer discount section, according to historical data,Lack of performance in an inflationary environment; According to historical data, the sector that performed well in the case of inflation must beEnergy Unit, REITs (Real Estate Trusts), Essential Consumption Unit , this Taoyuan Sanjieyi is an anti-inflation artifact.
(The source is the same as above. The stock price performance of various industries, the horizontal axis is the probability of outperforming inflation in history, and the vertical axis is the return performance)
So note that historically, IT stocks and optional consumption have been at a loss in the face of sustained inflation. The principle is also very simple,High inflation will bring a high discount rate, which will make the future cash flow of painting big cakes look less fragrant.This is why the super innovation and technology stocks favored by Sister Wood, whose positive cash flow is either in the future or imagined, will be humble to the dirt in the near future.
For example, Cui Ruzhuo is the most expensive painter in China who can show off his wealth, and the price of Master Cui's paintings ten years later is greatly influenced by how many paintings he can paint in this decade. The valuation logic of growth stocks is similar.
Back to the previous picture, why do energy, REITs and consumer staples perform so strongly in the inflationary environment? In fact, the logic is terrible. In the setting of the CPI index in the United States, 40% is housing cost, 15% is transportation energy and 15% is food. The reason why your CPI is soaring is that these living costs are rising, which of course directly benefits these three sectors.In fact, you can't figure out who is the cause and who is the result, whether the high CPI is caused by the frantic increase of your oil price by energy companies, or whether the high CPI expectation urges energy companies to raise prices frantically.
(Composition of US CPI Index, 2020. Source: Bureau of Labor Statistics BLS)
Banking stocks don't seem to be too CPI victims in the picture, but inflation is definitely not a good thing for banks and financial stocks.The reason is also very simple. Banks' business model is spread, and they are often the biggest creditors, and creditors are afraid of high inflation.Lao Lai likes high inflation best, and he can't wait for the 1 million he borrowed from you today to become a pile of wiping paper tomorrow. Therefore, people who are heavily in debt are essentially big bears of currency.
Public utility stocks, hydropower, gas and coal, tend to perform mediocre because they are very similar to bonds; When inflation goes up, interest rates on bonds rise, and their relative attractiveness declines. But it is generally stable, crossing bulls and bears.
Therefore, the basic conclusion is that if inflation is controlled at a relatively low level, it will not affect the valuation of the stock market too much; But beyond a certain level-say 3% or 4%-further gains will hurt the stock market as a whole. Of course, I think this also has a marginal diminishing effect, that is to say, when it hurts to a certain extent, it will be numb. If it is really rotten to the state of over-inflation, the stock price will follow the over-inflation and drift with the tide. The impact of rising inflation on different sectors is different. In history, it is energy, real estate trust funds, necessary consumption, and of course, big brands that you will not hang up if you eat; So you can adjust your portfolio according to your prediction of inflation.
But in fact, the most difficult thing is to predict the market prediction, that is, to guess how much of this persistent inflation has already been price in, and whether there will be a turning point in the future. Because if you switch to energy or REITs now, or the so-called big brand stocks with pricing power, is it too late, and will you be beaten at both ends? Think twice about this.
This article does not constitute an investment proposal;
Disclaimer: The above content represents only the personal views of the poster and does not constitute investment advice on this platform.