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Is Inflation a Concern for Value Stocks?

imageStock Markets21 minutes ago (May 18, 2021 04:30PM ET)

(C) Reuters. Is Inflation a Concern for Value Stocks?

The last week was like starting a roller coaster in the middle. For the first three days, the S&P 500 (SPY) fell fast and hard, only to recover on Thursday and Friday. Now the question is, are we headed for another fall, or is the ride over? Either way, volatility has been the name of the game as inflation worries deepen. Higher inflation discounts a growth stock’s present value and raises the likelihood that the Fed will raise rates, harming cyclical value stocks. Due to the sky-high valuations, I see growth stocks as more susceptible to losses. Value stocks, in general, have much more room to grow. Plus, we are picking the best of the best, which should succeed in any market environment. Read on below for what to do next….(Please enjoy this updated version of my weekly commentary from the POWR Value newsletter).

Last week started with a thud as stocks finished down on Monday as investors kept a close eye on the cyber-attack on a major U.S. pipeline. While the Dow hit an intraday record earlier in the day, it slid in the afternoon. Value stocks were relatively flat, while growth stocks, represented by the SPDR S&P 500 Growth (SPYG) ETF, lost 2%. Value stocks performed better as shares are still trading at an attractive level.

This continued Tuesday morning until losses extended to cyclical shares by midday as inflation fears returned to the forefront. A cocktail of rising prices, labor constraints, and potentially more stimulus has added fuel to the fire that inflation could take off. The losses on Tuesday were broad-based, with 84% of S&P 500 components down on the day. Faster inflation could mean sooner rate hikes by the Fed, despite their current stated position.

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Is Inflation a Concern for Value Stocks?

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