Growth Stocks Are Your Best Defense Against Rising Inflation

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Growth Stocks Are Your Best Defense Against Rising Inflation
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In his Daily Market Notes report to investors, while commenting on growth stocks, Louis Navellier wrote:

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Q3 2021 hedge fund letters, conferences and more

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Stagflation

I mentioned on Fox Business this morning that thanks to stagflation — persistent high inflation combined with high unemployment and stagnant demand — we are now dangerously close to a recession because the Atlanta Fed has slashed its third-quarter GDP estimate to an annual pace of 0.5%.  Maria Bartiromo wisely pointed out that not too long ago the Atlanta Fed was estimating 6% annual GDP growth.  There is no doubt that that deceleration in U.S. GDP growth is due to stagflation, especially as higher food and energy costs disrupt consumer spending patterns.

Since much of the inflation is related to food and energy, the poor people are being hurt the most.  Despite a 25% increase in food stamps and a 5.9% increase in 2021 for Social Security, Americans are not used to empty store shelves, gasoline prices more than doubling and the prices of most food staples rising.  The good news as a large, efficient economy, the U.S. has the ability to address the food and energy inflation, but offering to activate the National Guard will not fix the food and energy inflation that has Americans so furious.

I also mentioned in Fox Business that I was told by a logistics expert that truckers are being paid up to $14,000 per day to “sit” as big box retailers outbid smaller retailers.  This logistics expert also informed me that Costco has taken control of much of its own distribution.  I also discussed on Fox Business that some of the big box retailers, like Best Buy Co Inc (NYSE:BBY), Target Corporation (NYSE:TGT) & Walmart Inc (NYSE:WMT) should be OK, since they also control much of their distribution.  Another example is Kroger since they also control their distribution, so they should not have empty shelves.

In addition to all the shipping stocks that I recommend, some other companies that are prospering in the current environment include Expeditors International of Wshngtn Inc (NASDAQ:EXPD) (logistics coordination) and TFI International Inc (NYSE:TFII) (trucking).  The logistics and port bottlenecks are causing more uncertainty and helping fuel inflation.  As a result, I expect that the Fed will be revising its inflation guidance higher.

Fed's Unemployment Mandate

Speaking of the Fed, they have ignored inflation for too long and boosted the money supply in a successful attempt to stimulate the U.S. economy and stimulate employment growth, which is one of its Congressional mandates.  The good news is despite approximately 5 million missing jobs since the pandemic, the Fed has fulfilled its unemployment mandate and now must turn its attention to its other Congressional mandate, namely fighting inflation.  The November Federal Open Market Committee (FOMC) statement will be closely scrutinized and Wall Street expects guidance on both tapering its $120 billion per month in quantitative easing as well as its “dot plot” of forecasted interest rate increases in 2022.

The reason that the Fed has to raise its key interest rates is that market rates have already risen, especially intermediate market rates as inflation has spun out of control.  The Fed cannot fight market rates, so the November FOMC statement will likely clarify the next Fed moves.  Complicating matters further, Fed Chairman Jerome Powell is up for a possible second term and is backed by Treasury Secretary Janet Yellen.  Chairman Powell is known as a consensus builder and if you see dissenting votes within the FOMC, it is possible that President Biden would ignore Secretary Yellen’s advice and not reappoint Chairman Powell, especially if the Biden Administration needs a scapegoat for the stagflation that is systematically destroying U.S. economic momentum.

Bet On Growth Stocks

Scared? Everyone is. However, growth stocks, as well as dividend growth stocks, are historically your best defense against rising inflation.  I realized that a lot of us also own real estate, especially residential real estate, which has also been a great inflation hedge, but as interest rates rise, then even residential real estate can lose its “mojo.”  So as you look around the world as a place to look for inflation protection, your best bet continues to be predominately growth stocks as well as dividend growth stocks!

No Official Recession

The economic problems now enveloping the world are expected to cause a major recession in China, Europe and most emerging market economies.  The reason that emerging market economies are so vulnerable is that as they spend more on food and energy, so as food and energy inflation soars, consumers have less money in their pockets for other items, so other economic activity naturally stalls.

Overall, due to the fact that big order backlogs persist, I do not anticipate that the U.S. will slip into an “official” recession like much of the rest of the world.  Instead, I expect that Americans will do what they always do, namely innovate and learn how to prosper, regardless of the underlying environment.  I for one am excited and expect that the stock market will get increasingly narrow and more fundamentally focused.

Heard & Notable

Goods shipped between China and the U.S. via container ship took more than 70 days in July, August, and September of 2021 due to hold-ups and delays. Before the coronavirus pandemic, shipment between China and the U.S. via container took just over 40 days Source: Statista

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