Investing.com - Due to the large-scale assistance to the US economy, expressed in the desire of President Joe Bayden to increase the costs of some investors, according to the analyst of MarketWatch Michael Brasha, there are serious concerns on the market.
He is worried about the fact that too abundant "infringement" in the economy will lead to an increase in inflation, the influence of which can express in three cases.
First, if companies fail to cope with expenses, their profitability and profit growth will fall. Secondly, in the case of shifting the growing costs of clients, strong inflation can force the federal reserve system to tighten its monetary policy, after which the markets will go to the "bear" zone. Thirdly, inflation growth can lead to an increase in the yield of bonds, and then fixed income as the class of assets will become more attractive, and the increase in interest rates will reduce the cost of future profits.
According to Brush, you should not ignore the fear of inflation. Just remember these three important causes.
"What then to do?" Investors will ask. These are the recommendations give an analyst:
Those trends that have brought a Pandemic COVID-19, in particular, new technologies should be used. Performance is the main opponent of inflation. As it is height, companies can offer several products or services with the same amount of work, and shifting higher costs for their customers are no longer needed, since costs can remain at the same level.
The great flexibility of the labor force and the companies themselves, including due to remote work, is also one of the consequences of coronavirus. It can weaken inflation pressure, because it means less pressure on wages towards its increase.
Finally, no one canceled the "Law of the Jungle", and the pandemic only strengthened the trend: many large companies in the retail sectors, restaurants and entertainment went away from the market where the most flexible and productive remained, which should also increase overall performance, Goldman Sachs Group believes Inc (NYSE: GS).
Tips Brush clearly hint at the coming restoration of the economy this year and therefore have a projected significance. So, Brush recommends not to sell long-term positions, since this year promises to be successful for the economy as a whole and for markets, in particular. As for inflation, the growth of the performance of newly opening companies will still not give it to rise so that the Fed will soon raise the rates and began to reduce the assets of the assets this year. As for the prospects for growth, it should be expected to improve the situation in the labor market due to the advent of a larger number of vacancies in combination with a decrease in the number of cases of virus diseases due to vaccines and raising collective immunity: all this will also affect consumer spending growth. And finally, rates should be encouraged on the shares of those companies that will benefit from the cooler curve of returns, that is, cyclic stocks.
Author Laura Sanchez
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