Which Stocks Do Best During High Inflation?

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.

Australian social circles are shrinking as more people look for ways to keep a lid on spending, a new survey has found.

New research from Finder found more than one fifth of respondents had dropped a friend or reduced their social circle because they were unable to afford the same levels of social activity. The survey questioned 1,041 people about how increasing concerns about affordability were affecting their social lives. The results showed 6 percent had cut ties with a friend, 16 percent were going out with fewer people and 26 percent were going to fewer events.

Expensive events such as hens’ parties and weddings were among the activities people were looking to avoid, indicating younger people were those most feeling the brunt of cost of living pressures. According to Canstar, the average cost of a wedding in NSW was between $37,108 to $41,245 and marginally lower in Victoria at $36, 358 to $37,430.

But not all age groups are curbing their social circle. While the survey found that 10 percent of Gen Z respondents had cut off a friend, only 2 percent of Baby Boomers had done similar.

Money expert at Finder, Rebecca Pike, said many had no choice but to prioritise necessities like bills over discretionary activities.

“Unfortunately, for some, social activities have become a luxury they can no longer afford,” she said.

Which Stocks Do Best During High Inflation?

A look at past inflationary periods offers clues on where to invest.

More than one fifth of Australians are cutting back on the number of people they socialise with