What’s Going On Here?A new survey showed that investors now think inflation is a bigger threat to their portfolios than the pandemic – but hey, at least it’s something new to get anxious about… What Does This Mean?Every month, Bank of America surveys over 200 investment managers to see what they’re most worried about, and for the first time in a year, it’s not coronavirus. They now think inflation is the biggest risk to their portfolios, and they almost all agree that it is on the way: a record 93% of those surveyed are expecting global inflation over the next twelve months. Investors’ biggest fear is that the combination of an economic recovery and unprecedented government spending will push inflation up by too much, too quickly. Because if that happens, central banks might hike interest rates to slow down rising prices – and damage stocks in the process. Why Should I Care?For markets: The winners and losers of surging prices.
Inflation often goes hand in hand with strong economic growth, which might be why the survey’s participants are upping their stakes in economically sensitive sectors like banks and energy. Meanwhile, they’re selling off their shares in tech companies, whose earnings rely less on economic performance. So much so, in fact, that the percentage of their portfolios invested in tech stocks just hit its lowest level since 2009 (tweet this).
Zooming out: It’s crucial to keep economic growth steady.
All eyes were on the US Federal Reserve’s (the Fed’s) update on Wednesday, as investors try to work out its future interest rate plans. See, the US economy is now likely to grow faster than the Fed previously thought, but the central bank has said – and repeated on Wednesday – that it doesn’t expect to raise rates anytime soon. That could be good for stocks in the short term, sure, but if prices start rising too fast and the Fed has a sudden change of heart, a selloff might be next… | 