Which Stocks Do Best During High Inflation?
A look at past inflationary periods offers clues on where to invest.
A look at past inflationary periods offers clues on where to invest.
Investors commonly hear that when inflation surges, it is best to put your money into physical assets that track the jump in prices, with real estate often suggested as the best option. But physical assets, particularly properties, generally can’t be bought as easily or quickly as securities, and acquiring them often entails significant transaction costs.
The second-best option is usually to rebalance your stock portfolio to shift it into industries that do well in an inflationary environment. So, when inflation surges, what industries do best for a stock portfolio?
To sum up: Shares in real-estate investment trusts or companies in the real-estate industry are not the best option. Stocks in the materials and energy industries outperform all others by a long shot, according to the findings of a study I conducted with my research assistants, Zihan Chen and Yiming Xie.
We gathered data on the returns for all stocks listed on the New York Stock Exchange or Nasdaq over the past 50 years. We then examined the course of the consumer-price index over those years and found three spikes in prices during which the inflation rate doubled in less than 24 months: March 1973 to May 1975, April 1978 to September 1980, and February 2021 to March 2022.
We separated each company in our data set into one of 10 industries, and examined how the median stock in each industry, in terms of returns, performed during those three periods of surging inflation.
The median real-estate stock delivered a 3.32% annualized return over the three periods, far below the annualized returns of 18% for the median energy company and 16.81% for the median materials company.
On the opposite end of the spectrum, healthcare (including pharmaceuticals) performed the worst, with an annualized return of minus 8.44%, followed by consumer staples at minus 6.73%, consumer discretionary at minus 5.71%, utilities at minus 4% and technology at minus 3.64%.
The negative results for healthcare, tech and consumer discretionary are understandable, because these are interest-rate-sensitive industries. But the results for consumer staples and utilities might surprise some investors, because these are often thought of as safe assets in rough times.
At the end of the day, the best move for investors who want to reposition their portfolios quickly when inflation is surging is to shift into materials and energy companies.
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An original watercolour illustration for the cover of Harry Potter and the Philosopher’s Stone, 1997 — the first book in J.K. Rowling’s hit series—could sell for US$600,000 at a Sotheby’s auction this summer.
The illustration is headlining a June 26 sale in New York that will also feature big-ticket items from the collection of the late Dr. Rodney P. Swantko, a surgeon and collector from Indiana, including manuscripts by poet Edgar Allan Poe and Arthur Conan Doyle, author of the Sherlock Holmes books
The Harry Potter illustration, which introduced the young wizard character to the world, is expected to sell for between US$400,000 to US$600,000, which would make it the highest-priced item ever sold related to the Harry Potter world. This is the second time the illustration has been sold, however—it was on the auction block at Sotheby’s in London in 2001, where it achieved £85,750 (US$107,316).
The artist of the illustration, Thomas Taylor, was 23 years old at the time and a graduate student working at a children’s bookshop. According to Sotheby’s, Taylor took a “professional commission from an unknown author to visualise a unique wizarding world,” Sotheby’s said in a news release. He depicted Harry Potter boarding the train to Hogwarts on platform9 ¾ platform, and the illustration became the “universal image” of the Harry Potter series, Sotheby’s said.
“It is exciting to see the painting that marks the very start of my career, decades later and as bright as ever! It takes me back to the experience of reading Harry Potter for the first time—one of the first people in the world to do so—and the process of creating what is now an iconic image,” Taylor said in the release.
Meanwhile, to commemorate the 175th anniversary of Edgar Allan Poe’s For Annie , 1849, Sotheby’s recently reunited the autographed manuscript of the poem with the author’s home, Poe Cottage, in the Bronx.
The cottage is where the author lived with his wife, Virginia, and mother-in-law, Maria Clemm, from 1846 until he died in 1849. The manuscript, also from the Swantko collection, will remain at the home until it is offered at auction at Sotheby’s on June 26 with an estimate between US$400,000 and US$600,000.
Poe Cottage, preserved and overseen by the Bronx County Historical Society, is home to many of the author’s famous works, including Eureka , 1948, and Annabel Lee , 1927.
“To reunite the For Annie manuscript with the Poe Cottage nearly two centuries after it was first composed brought to life literary history for a truly special and unique occasion,” Richard Austin , Sotheby’s Global Head of Books & Manuscripts, said in a news release.
For Annie was one of Poe’s most important compositions, and was addressed to Nancy “Annie” L. Richmond, one of the several women Poe pursued after his wife Viriginia’s death from tuberculosis in 1847.
In a letter to Richmond herself, Poe proclaimed For Annie was his best work: “I think the lines For Annie much the best I have ever written.”
The poem was composed in 1849, only months before Poe’s death, Sotheby’s said in the piece, Poe highlights the romantic comfort he feels from a woman named Annie while simultaneously grappling with the darkness of death, with lines like “And the fever called ‘living’ is conquered at last.”
In the margins of the manuscript are the original handwritten instructions by Nathaniel P. Willis, co-editor of the New York Home Journal, where Poe published other poems such as The Raven and submitted For Annie on April 20, 1849.
Willis added Poe’s name in the top right and instructions about printing and presenting the poem on the side. The poem was also published in the Boston Weekly that same month.
Another piece of literary history included in the Swantko sale could surpass US$1 million. Conan Doyle’s autographed manuscript of the Sherlock Holmes tale The Sign of Four , 1889, is estimated to achieve between US$800,000 and US$1.2 million.
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