US Stock Market: ETFs to buy at the time of rising inflation

By Raj Gandhi

Rising prices are burdensome for many stakeholders of the economy. From low-income consumers without much wiggle room in family budgets to small business owners trying to keep down input costs to turn a profit. Higher costs are also troublesome for investors who now must see returns that can match this increase if they want to protect their nest egg.

If one sees only 1% or 2% gains a year on their investments but food and housing prices are rising 5%, the purchasing power is steadily reduced if the nominal value of your portfolio is moving higher.

In prior years, 5% or 7% returns weren’t difficult to come by in the stock market. But with volatility in the S&P 500 and many top stocks in the red for the year-to-date in 2022, investors are looking seriously at alternatives that can help them bust inflation to both protect their nest egg and keep their portfolio growing.

Against this backdrop, we suggest a few sector ETFs that can be worth investing at the time of rising inflation. Below we highlight those:

The energy sector tends to perform well in an inflationary environment. Revenues of energy stocks are dependent on energy prices, a key factor of inflation indices. The operating backdrop of the sector, too, is bullish. Oil prices have been rising since the beginning of 2022. The upside in crude oil prices was triggered by factors like easing COVID-19 concerns, supply shortages, and geopolitical tensions in energy-rich Eastern Europe and the Middle East. SPDR S&P Oil & Gas Exploration & Production ETF XOP could be a good play here.

Food & Grocery Stocks
Food-at-home inflation is rising faster than food-away-from-home inflation, indicating the hot groceries market. Food companies normally pass on cost increases of raw materials to consumers to maintain the profit margin. With consumer staples or food companies being a non-cyclical sector, the sheer necessities of staples can’t even deter consumers from buying those goods. Hence, the sector should hold up well in an inflationary environment.

Real Estate
Rents are increasing fast. It rose 0.6% in May versus 0.5% in April. Rising home prices also boosted the demand for real estate. Zacks Rank #2 (Buy) iShares U.S. Real Estate ETF IYR should thus win.

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

The index for airline fares continued to shoot higher, increasing 12.6% in May after rising 18.6% the prior month. The index for used cars and trucks jumped 1.8% in May after declining in each of the three prior months. The index for new vehicles logged an uptick in May, rising 1.0% after expanding 1.1% in April.

(Author is Co-founder, DollarBull Fintech Platform empowering Indian investors with global investing solutions)

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