Concerned about inflation? Here's how to pivot your portfolio
A version of this story first appeared in CNN Business’ Before the Bell newsletter. Not a subscriber? You can sign up right here.
New York / London (CNN Business)Americans have witnessed some wild price hikes over the past few months. Shortages and supply chain issues across the world have sent the cost to make and move goods soaring and left consumers paying up.
Since then, prices for some pandemic favorites — such as lumber — have leveled off. But even as the economy returns to something closer to normal, inflation remains unrelentingly high.
It’s a dramatic change from the pre-pandemic state of affairs and another example of how the coronavirus crisis is reshaping the economy and everyday life.
See here: Used car prices soared in part because lockdowns led many city-dwellers to buy cars, and because new car production was hampered by shuttered plants and chip shortages. In the year ended in May, used car prices were up nearly 30%, according to the Bureau of Labor Statistics.
Before the pandemic, inflation — which the Federal Reserve would like to have around 2% — had been stuck near rock bottom for years. Now, the Fed finds itself striking an increasingly difficult balance between supporting the recovery through ample stimulus while keeping inflation in check.
As the recovery gathers steam, the items that are driving inflation up are changing. For example, people are spending more money dining out as pandemic restrictions are lifted, while the return to offices is prompting a work wardrobe refresh.
Data point: In the 12-month period ended in May, the price index for food eaten outside the home was up 4%, fueled by increases in restaurant spending in late spring as Covid restrictions were scaled back. Similarly, apparel prices rose 5.6% in the year ended in May.
Eventually, these pandemic-era price hikes should normalize. Last month, Federal Reserve Chairman Jerome Powell, fielding questions about rampant inflation at a press conference, said there is no reason to assume prices will remain this high for an extended period. But quite how long they stick around remains uncertain.
Powell isn’t alone in expecting inflation to fall. The bond market is pricing post-pandemic inflation to be as stubbornly low as it was before, head of income investing for the BlackRock Multi-Asset Strategies Group, Michael Fredericks said last week on CNN Business’ digital live show Markets Now.
Last week, the 10-year Treasury bond yield dropped to its lowest level since February, indicating that investors likely see current price spikes as transitory, or are at least waiting to see how inflation will develop over the summer.
Up next: June consumer price data is due on Tuesday.
It’s raining unicorns
“Unicorn” may no longer be the right term to describe companies that achieve $1 billion valuations, because these days they’re a dime a dozen.
What’s happening: Between March and June, 136 new unicorns were created globally — more than the 128 born through all of 2020 and a new record, according to data provider CB Insights.
Investments into startups worldwide also smashed previous highs, hitting $156 billion in the second quarter. “This marks the biggest quarter for dollars raised in the last decade,” CB Insights said in a report this week.
The United States accounted for nearly half of the amount raised, with Silicon Valley leading the charge and cementing its position as the world’s largest tech hub, if ever there was any doubt.
According to CB Insights, there were 390 “mega rounds,” where companies raise $100 million or more, triple the number in the same quarter of last year.
Details, details: Among the top 10 deals in the quarter sits Fortnite creator Epic Games’ $1 billion fundraise, Swedish battery maker Northvolt’s $2.75 billion funding round and a $1.8 billion investment into Indonesian logistics company J&T Express.
The title of the world’s most valuable unicorn belongs to TikTok owner ByteDance ($140 billion), followed by payments company Stripe ($95 billion) and Elon Musk’s SpaceX ($74 billion).
Investor insight: The pandemic has clearly boosted demand for digital services to a new level, highlighted by the eye-watering amounts raised by e-commerce companies and those in financial technology and health technology.
At the same time, a new crop of yield-hungry investors awash with central bank liquidity are becoming increasingly active in private finance. Many of these players are much larger than traditional venture capital outfits.
“That puts a small number of financiers in control, and raises serious questions about how the wealth will be spread as venture investing completes its transformation from a Silicon Valley cottage industry into one of the main engines of global finance,” writes the FT’s Richard Waters.
Monday: Eurogroup finance ministers meet; Elon Musk heads to court over Tesla’s SolarCity deal
Tuesday: US CPI; China trade data; Volkswagen (VLKAF) unveils new strategy; Goldman Sachs (GS), JP Morgan (JPM) and Conagra (CAG) earnings
Wednesday: Zomato IPO; Bank of America (BAC), BlackRock (BLK), Citigroup (C), Delta Air Lines (DAL) and PNC (PNC) earnings
Thursday: China GDP; OPEC monthly report; US industrial production; TSMC (TSM) earnings
Friday: US retail sales; US consumer sentiment; Bank of Japan interest rate decision; Ericsson and State Street (STT) earnings
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