Inflation is ‘the 800-pound gorilla’ in markets right now

Soaring inflation and fears of an economic slowdown are the “800-pound gorilla” in markets right now, according to Doug Sandler, head of global strategy at Riverfront Investment Group.

He and Brian Jacobsen, senior investment strategist at Allspring Global Investments, joined Yahoo Finance Live yesterday to discuss their outlook on the markets.

“We haven’t quite escaped this yet,” Jacobson said. “We don’t think we’re going to really be able to get through some of this angst in the markets probably until more the middle of July.” Jacobson added that Allspring’s multi-asset team is “cautiously positioning” their portfolios and biasing the “more defensive and low volatility parts of the market.”

While Sandler called inflation “the 800-pound gorilla,” he stated that the “short term pain we’re going through will ultimately lead to the long-term gain” if supply chains catch up, demand is cut, and if some pressure is lifted off the Fed.

Jacobson and Sandler both agree to not “be emotional about the [market’s] reaction” and that consumers are “still in pretty good shape.” Jacobson cited that “our ability to skirt recessions [is] thanks to consumers doing what they do best, which is to consume.”

New data from the Bank of America Institute showed that “credit and debit card spending was up 9% in May year-over-year” and “overall transaction volumes were up 8% year-over-year.”

Sandler also has his eye on international markets, but cautions looking at emerging markets because they are “all about China.” Sandler’s view is that there is “going to be some struggle there for a longer period of time.” The Shanghai Stock Exchange Composite Index (000001.SS) is down nearly 11 percent year-to-date and China’s lockdowns and zero-Covid policy contribute to the downturn.

While Allspring Investments has “a positive outlook for the consumer staples area,” Sandler disagreed because “they’re expensive right now and we’re already wet.” Sandler’s concern is “a timing thing,” and he believes eventually there will be “a good time to buy those.” Besides consumer staples, Jacobson noted REITs and yields can “do a little better in higher inflation environments.”

Investors wonder when “the 800-pound gorilla” will go back in the forest, but in the meantime, Jacobson suggests “focusing on quality regardless of which sector you’re looking at” might be a good way to handle the market’s correction.

Yaseen Shah is a writer at Yahoo Finance. Follow him on Twitter @yaseennshah22

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