Home Apparel market US stock market: ETFs to buy when inflation rises

US stock market: ETFs to buy when inflation rises


By Raj Gandhi

Rising prices are a burden for many players in the economy. From low-income consumers with little wiggle room in family budgets to small business owners trying to cut input costs to make a profit. Higher costs are also troublesome for investors who now need to see returns that can match this increase if they want to protect their nest egg.

If one only sees 1% or 2% gains per year on one’s investments but the prices of food and housing increase by 5%, purchasing power is steadily reduced if the face value of your portfolio increase.

In previous years, returns of 5% or 7% were not hard to come by in the stock market. But with the volatility of the S&P 500 and many stocks in the red year-to-date in 2022, investors are seriously considering alternatives that can help them curb inflation to both protect their nest egg and maintain growth. of their portfolio.

In this context, we suggest a few sector ETFs that may be worth investing in when inflation is rising. Below we highlight these:

The energy sector tends to perform well in an inflationary environment. Earnings from energy stocks depend on energy prices, a key driver of inflation indices. The sector’s operating environment is also bullish. Oil prices have been rising since the start of 2022. Rising crude oil prices were triggered by factors including easing COVID-19 concerns, supply shortages and geopolitical tensions in Eastern Europe. energy-rich East and Middle East. SPDR S&P Oil & Gas Exploration & Production ETF XOP could be a good play here.

Food and grocery stocks
In-home food inflation is rising faster than out-of-home food inflation, indicating the hot grocery market. Food companies normally pass on raw material cost increases to consumers to maintain the profit margin. Since consumer staples or food businesses are a non-cyclical industry, the sheer necessities of commodities cannot even deter consumers from purchasing these commodities. Thus, the sector should hold up well in an inflationary environment.

Rents are rising rapidly. It increased by 0.6% in May against 0.5% in April. Rising house prices have also boosted demand for real estate. Zacks Rank #2 (Buy) iShares US Real Estate ETF IYR should therefore win.

The household furnishings and operations index continued to rise, rising 0.4% during the month. The leisure index also rose 0.4% in May. Both increases were the same as in April. The clothing index gained 0.7% in May after falling in April. SPDR S&P Retail ETF XRT, which has a No. 2 Zacks rating, has exposure to the apparel industry.

The airfare index continued to climb, rising 12.6% in May after increasing 18.6% the previous month. The used car and truck index jumped 1.8% in May after falling in each of the previous three months. The new vehicle index edged up in May, rising 1.0% after rising 1.1% in April.

(The author is co-founder of DollarBull Fintech Platform, which provides Indian investors with global investment solutions)