Yesterday’s announcement that US inflation surged to 7.5% in January – its highest level in 40 years – was bad news for investors, with the stock market opening lower, growth stocks getting another hammering, and US 10-year treasuries going through 2%.
US interest rates must now surely go up in March and will have to rise faster than expected in an attempt to curb the rising prices before they do any lasting damage to the US economy.
“The Fed is well and truly behind the curve,” commented Darius McDermott, managing director of FundCalibre, “a policy error was always going to be one of the biggest risks to markets this year and it seems that is what we are seeing. The Fed has not moved fast enough.
“There seems to be nothing in the data which suggests inflation is slowing down. Month on month prices accelerated at 0.6%, with food up 0.9% month on month.”
“Inflation this high does not make investing easy,” continued Darius. “The one glimmer of light is actually in the UK, where our much unloved stock market has more of a value tilt and has actually started to outperform its peers in recent weeks.
“Those looking to invest money at the moment have two quite binary choices, depending on their personal outlook.
“They could either choose to invest in a value-orientated funds such as Schroder Recovery or Ninety One UK Special Situations, or top up on quality growth stocks that have fallen to much more attractive valuation levels. In this case they could pick funds such as Baillie Gifford Global Discovery or Rathbone Global Opportunities.
“There is one final option though – investing in real assets, which tend to hold their prices better in inflationary periods.
“VT Gravis UK Infrastructure Income is an example, as it has a good yield and invests in real assets with inflation protection. REITs are another example, and trusts in this space such as TR Property.”