…The green shoots of inflationary pressures are sprouting in our daily lives [and, as such, NOW is the time]…investors should be actively seeking out sectors that can realize rising revenues and profits because of the wave of price increases in goods and services that will be passed on to businesses and consumers.
Written by Bryan Perry (navellier.com)
Inflation presents special challenges to investors. Even if your investments are growing in value, inflation is still reducing that value on the back end, which is why investment returns must constantly be “adjusted for inflation” to reflect their real returns, so let’s look at an action plan that incorporates certain asset classes and market sectors that will benefit from what will likely be a forward inflation rate of 3% or so (depending on how fast the economy accelerates from a pro-business, pro-growth, Trump-fueled agenda).
Interest rates are coming off levels that are lower than a speed bump, but the bond market is ALWAYS way out in front of Fed policy and calendar data. It’s my view that any whiff of a strong fourth-quarter earnings season and a fast-track Congressional bill to cut corporate income taxes is going to be met with the 10-year Treasury yield rising to 3.0% by the end of February or quite possibly into the March FOMC meeting. A 3.0% yield represents a level not seen since early January, 2014. It is a major technical resistance level from when the economy appeared to be moving toward escape velocity before suffering another setback in growth, primarily related to the meltdown in the energy and other commodity sectors.Â
From the 12-year chart (above) of the 10-year Treasury Note yield, the blue lines represent where I believe the 10-year yield will pause as per the horizontal line, while the sloping (moving average) line shows what I believe is a clean upside technical breakout from a multi-year protracted downtrend that officially brought the bond rally to an abrupt end. If the old Wall Street saying “charts don’t lie” has any bearing, then it should provoke income investors to use this current pause to heed some fundamental advice – like “avoid long-term fixed income investments and emphasize growth in equity investments.”
