US Inflation Rises Again: What Are Investors Expecting
Last week, the fresh US inflation data was reported at a higher-than-expected yearly rate of 4.7% (vs 4.3% average forecast). Importantly, the PCE measure (Personal Consumption Expenditure) tracks inflation in goods and services that are directly related to end consumers’ expenditures (hence the name). Therefore, the US Federal Reserve pays special attention to this specific inflation measure.
A higher-than-forecasted figure gave rise to expectations that magnitude and/or length of Fed hikes would increase and, therefore, produced a negative momentum in stock markets. S&P 500 lost 2.7% throughout the week, while NADSAQ 100 and Dow Jones 30 fell 3.1% and 3.0%, respectively.
It is worth noting, that not all sectors were affected equally by the worrying inflation reading. For instance, the most cyclical sectors (Communications and Consumer Discretionary) tumbled more than 5.0%, while the non-cyclical sector of Consumer Staples lost a mere 1.3%. Importantly, the average price change in 10 largest companies of Consumer Staples was 0%. The reason for this is that non-cyclical sectors are comprised of companies characterized by relatively stable demand.
Consumer Staples includes companies that produce consumer necessities. Some of the most popular examples of such companies are Walmart, Coca-Cola, PepsiCo, and CostCo. Major industries of this sector produce household products, packaged foods and drinks, tobacco, personal items, and retail stores of such goods. Based on the type of goods and services this sector provides, it is clear why the component company stocks feature less volatility and, therefore, are used for reducing the overall portfolio risk.