What stocks are most affected by inflation? (2024)

What stocks are most affected by inflation?

High inflation has historically correlated with lower returns on equities. Value stocks tends to perform better than growth stocks in high inflation periods, and growth stocks tend to perform better during low inflation.

Value stocks tend to perform better in high-inflation environments, as their market price is usually directly proportional to the rate of inflation. In contrast, growth stocks, with minimal cash flows, have a negative correlation with inflation and often see their market prices drop when inflation rates rise.

Some of the worst investments during high inflation are retail, technology, and durable goods because spending in these areas tends to drop.

An inflation rate between 1% to 3% is typically considered healthy for stocks. Periods of high inflation, on the other hand, often cause uncertainty, volatility and a slowdown in spending, leading to lower economic growth.

But holding equities during periods of high inflation could be beneficial for a couple of reasons. For one, stocks are considered an inflation hedge against soaring prices. They could help you equal or outpace the average rate of inflation over the long term.

Inflation allows borrowers to pay lenders back with money worth less than when it was originally borrowed, which benefits borrowers. When inflation causes higher prices, the demand for credit increases, raising interest rates, which benefits lenders.

Why do people invest in gold?

Throughout history, gold has been seen as a special and valuable commodity. Today, owning gold can act as a hedge against inflation and deflation alike, as well as a good portfolio diversifier. As a global store of value, gold can also provide financial cover during geopolitical and macroeconomic uncertainty.

“In terms of household well-being, inflation is a net boon to the middle class. The top 1% of the wealth distribution also gains handsomely from inflation. On the other hand, poor households (the bottom two quintiles in terms of wealth) get clobbered by inflation,” he wrote.

“While rising inflation can benefit Amazon's retail business by resulting in higher pricing and marketplace fees (ranging from 8 – 15%), we believe that the sheer magnitude of inflation in Q2 directly led to lower consumer discretionary spending,” Wedbush analysts wrote in a report this week.

Multiplying 480 (40 years) payments by $160 equals $76,800. So in this case, the impact of compounding has almost a 13X multiplier effect: $76,800 was contributed to create a final future value over $1,000,000.

Because of how precious cash can be during times of financial stress, many have said that cash is king. The phrase means that having liquid funds available can be vital because of the flexibility it provides during a crisis.

Increase your income.

Increasing the amount of money you make each month is another way to cover the rising cost of goods and services. Consider asking your current employer for a raise. The worst thing they can say is no. Or maybe you have a hobby that could be turned into a profitable side hustle.

This calls for investing in stocks such as CrowdStrike CRWD, PagerDuty PD, PLDT PHI, Atmos Energy ATO and Granite Construction GVA that stand to benefit from a lower-interest-rate environment, heading into the new year.

What are the best stocks to buy in a recession?

Dividend-paying stocks can help you offset the damaging impacts of inflation on your portfolio. Dividend-paying stocks may be an overlooked option for investors looking to help hedge against inflation.

Any money that you plan to deploy for a short-term goal — one happening in the next one or two years — is best kept in cash, Benz notes. Because there is no chance of a decline in value, “cash is the best option, even if inflation is a risk factor,” she says.

Prioritize paying down high-interest debt

If you have any credit card debt, that debt will increase at a higher rate, and become more expensive over time. Avoid that extra expense by taking steps to pay down any credit card debt you might have and paying off your balance each month if you can.