Monthly horror show: Inflation numbers spooks investors

Inflation will haunt your portfolio for months to come. US Consumer prices jumped 0.9% in October (6.4% compared to Oct  2020) — the highest level in 30 years.

What’s the big deal? For investors, inflation is one of the biggest things to fear. The longer high inflation lasts, the bigger its potential impact on markets.

• Economists believe the economy is entering a period of unusually high inflation — with things getting worse, before they get better.
• The remedy for inflation: raising interest rates — which reduces consumer spending and could negatively impact stocks.

So far, the Fed has downplayed inflation — expecting it to be temporary and falling in 2022. But if high inflation stays longer than expected or continues to rise, the Fed could be forced into sudden action — which could rock the markets.

Inflation hedge: Historically, gold was used as an inflation hedge (investments protecting investors from high inflation). Now, younger investors are favoring Bitcoin over gold to become the new inflation hedge.

• Gold has underperformed in recent months — while cryptocurrencies like Bitcoin and Ethereum continue to make all-time highs.
• It’s still too early to tell whether Bitcoin can hold up during periods of high inflation.

Looking forward: Many of the issues causing high inflation are likely temporary but it’s uncertain when things will get better. How can investors position their portfolio for higher inflation?

• Look for companies with pricing power which could raise prices without lowering demand.
• Find sectors that could perform better even during periods of rising interest rates.

The Joe’s take: In the months leading up to a potential interest rate increase — which could come as early as July 2022, markets could react violently to potential announcements.

Before then, investors could take any big upward market moves as chances to shift their portfolio around.