The recent concern over inflation may be overblown, BMO (BMO) Capital Markets Chief Investment Strategist Brian Belski said in an interview with Yahoo Finance Live last week.
“What we've really seen for the last several years is too many investors focusing on macro and quantitative factors,” Belski said. “And as we transition this market into more of an earnings and fundamentally-driven market, while the returns could be a little bit lower — obviously, than what we've seen with respect to our multiple-driven market and a momentum-driven market — we think they're going to be much more consistent and stable.”
Rising inflation has dominated financial news headlines for the past few weeks, especially after recently released CPI data revealed a 5.4% increase on the year in June. Inflation woes have crept into the equity market as well, sending stocks down domestically and abroad.
Yet market fundamentals are relatively strong, Belski contended. He stated that he “continues to believe that too many people are focused on inflation.”
There are a few data points to support this view, Belski said. Firstly, bond yields are down significantly. “Since we started being scared about inflation, which was February if you remember, our bond yields are down pretty dramatically,” he said.
Secondly, certain supply shortages that have been causing disinflation, like the chip shortage, could be ending soon. The global semiconductor shortage has been devastating for an automotive industry already facing supply chain disruptions caused by the coronavirus pandemic. Issues with supply have caused car production to dip and prices to rise sharply, contributing to higher inflation rates. But with supply chains beginning to heal and the chip shortage possibly having already reached its peak, inflation may not be as persistent a problem as many believe, Belski added.
Lastly, inflation metrics may not paint an entirely accurate picture. “Some of these other issues with respect to inflation and how we measure inflation have been a problem for the majority of my career … since inflation peaked in 1982,” he said. “So I think we're trying to be too academic with this.”
Belski noted that tech stocks are a good investment for the near future, as many of their weaknesses have already been exposed this year.
“We've been on record all year long saying, ‘don't sell tech’. And I think, when too many people got too value oriented, and too cyclical oriented, they began to underperform when tech began to recover again,” he said. “I think you have to be much more selective and be much more thematically driven.”
Ihsaan Fanusie is a writer at Yahoo Finance. Follow him on Twitter @IFanusie.
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