Article_Normal, N/A, Corporate Strategy/Planning, Corporate/Industrial News, Economic Performance/Indicators, Inflation Figures/Price Indices, Economic News, Equity Markets, Commodity/Financial Market News, Content Types

Article_Normal, N/A

Stock markets outside the U.S. could beat inflation even at 1970s levels, says Citigroup

Stock markets outside the U.S. could beat inflation even at 1970s levels, says Citigroup

6/13/2021 12:04:00 PM

Stock markets outside the U.S. could beat inflation even at 1970s levels, says Citigroup

Investors weighing stocks as a way to beat inflation may want to look beyond the U.S. market, according to analysts at Citigroup.

While equity gains exceeded inflation in decades outside the 1970s and 2000s, valuations matter more to long-term performance, Citi strategists said in a research note Monday. Based on cyclically adjusted price-to-earnings, or CAPE ratios, they predicted U.S. stock returns will lag annualized double-digit gains in the U.K., Germany, Japan and France for the rest of this decade.

COVID-19 live updates: 'Steady increase' in vaccines in past month, White House says Viva Italia! Olympic golds follow soccer and song successes Will Trump be spoiler as California GOP seeks Newsom recall?

The U.S. stock market looks expensive with a CAPE ratio of 39x, setting it up for an annualized return of 6% for the remainder of the 2020s, according to their research. That’s similar to U.S. stock gains produced during the 1970s — a decade marked by high inflation, the report shows.

“But it would take quite some upturn in U.S. inflation to turn this into a negative real return,” the strategists said. Still, they suggested that “maybe the best inflation hedges are to be found in the cheaper markets outside the U.S,” where real stock returns may remain positive “even if inflation rose towards 1970s levels.” headtopics.com

Investors have been watching inflation measures closely, trying to gauge whether a jump in prices will prove temporary, as the Federal Reserve has suggested, as the economy recovers from the pandemic. The U.S. consumer-price index surged to 4.2% in April, the highest level since 2008, while inflation is picking up in most countries.

See: The biggest ‘inflation scare’ in 40 years is coming—what stock-market investors need to knowU.S. inflation will rise to 2.7% this year, slowing to 2.1% in 2022, Citi economists estimate. While “everybody knows that bonds are vulnerable to higher inflation,” the bank’s strategists questioned whether equities can offer a hedge as they have in the past, when commodity stocks stood out for their best real returns.

Key Words: Why Jeremy Siegel says stocks can ‘more than compensate’ even if inflation rises 20% over next 2 to 3 yearsDuring the 1970s, when investors struggled with 7% inflation, the only sectors that produced “positive real returns” in the U.S, were energy and telecommunications, their research found. “However, the natural inflation-hedging qualities of oil stocks have been constrained by ESG concerns,” the strategists said. “Maybe mining stocks will do a better job this time round.”

In the 1970s, more “rate-sensitive sectors,” such as durables, healthcare and information technology, had some of the weakest annualized returns, according to their report. As for the “negative” real returns for stocks in the 2000s, “it was the combination of high valuation at the start of the decade and financial crisis at the end that proved fatal, despite much lower inflation.” headtopics.com

Beirut Explosion News & Videos - ABC News Refugees pushed to back of the line amid vaccine shortages U.S. Republican report says coronavirus leaked from Chinese lab; scientists still probing origins

While “equities have been a decent hedge against inflation” in the past, the Citi report shows that “double digit inflation and interest rates, as seen in the 1970s, were too much to beat.”Rates today, by contrast, have stayed low “partly because of the ‘we won’t hike even if inflation picks up’ rhetoric from central banks,” the analysts wrote. “Perhaps if real yields stay negative then high equity valuations can be sustained.”

That means the “key issue for equities” is how central banks will respond to rising inflation, the strategists said. They estimated that a rise in real rates to the 1% level “seen at the end of the Fed’s last tightening cycle would imply global equities trading on a PE of 13.5x, with prices 30% below current levels.”

See: ‘Good’ inflation or ‘bad’? Investors are scared because they can’t tell difference just yetReal rates matter more to the valuation of growth equities than to value stocks, according to the report. “This suggests that the much-predicted bursting of the growth stock bubble won’t happen until real rates rise significantly, something that central banks remain reluctant to let happen,” the strategists said.

The Fed will next week hold its fourth policy meeting of the year.“In their March forecasts, the Fed projected that, despite clearly achieving all of their long-term economic goals by the end of 2023, they did not foresee any increase in the federal-funds rate before 2024,” said David Kelly, chief global strategist at J.P. Morgan Asset Management, in a note Monday.. “If, after reassessing their forecasts for the economy next week, the Fed maintains this extraordinarily dovish stance, then the risk of a boom-bust recession will have increased to a substantial degree.” headtopics.com

Read more: MarketWatch »

Tourists, villagers flee as wildfires ravage Turkish resorts

Wildfires are raging near Turkey’s holiday beach destinations of Antalya and Mugla and in the surrounding countryside for a fifth day

Did UPS Stock Really Warrant A Decline Following Its 2023 Guidance?The stock price of United Parcel Service has seen a 5.1% drop over the last five trading days. The drop came after the company announced its outlook for 2023 with revenues to be in the range of $98 billion and $102 billion, and adjusted operating margin to be in the range of 10.5% and 12.0%...

RBC names Zoom Video a top pick, says stock can bounce back 30%The stock is down 38% from its late October peak as the fast vaccine development led investor's to focus on Zoom's future use case. Pro Investors! There is only ONE the most important thing you need to know about StockMarket - WE ARE IN THE BIGGEST STOCKMARKET BUBBLE IN HISTORY!!! 205% Ratio of StockMarket CAP to GDP!!! SIGNIFICANTLY OVERVALUED!!! DON'T LOSE YOUR MONEY!!! Pro WallStreet 'advisers' and mass media: CNBC, Bloomberg have to be very proud for luring clueless retail 'investors' into the biggest StockMarket BUBBLE in history! This is what they are paid for by big corporations - turning retail investors into bagholders! Pro Shame on RBC. This is clear deception. Pump and block trading on their platform and dump while no one else can sell. They should be fined and jailed.

Stock Futures Waver After S&P 500 Hits RecordU.S. stock futures were little changed a day after the S&P 500 nudged up to a fresh record as investors weighed rising inflation against evidence of a healing labor market. good Any outrage about RACIST Hunter? Imagine if Donald Trump Jr. used the N-word. 'Hunter Biden used the n-word multiple times in casual conversation, text messages show' Casually uses the n word? Hunter Biden is racist like his Daddy Joe I’m not sure if they still have tours. Please Americans you should visit Hitler’s bunker in Austria/Bertsegarten and you’ll be surprised. We just hear one side of the story. They don’t have statues of Hitler, but in America we’ve statues of Confederate men.

Vertex Pharmaceuticals, AMC, Uber, Dave & Buster’s: What to Watch When the Stock Market Opens TodayGameStop is ticking higher again, and earnings from Dave & Buster’s have brought investors out to play. can't stop, won't stop, gamestop E is

If you're thinking of riding the next meme stock mania, be sure to sell in about 2 weeksFor subscribers: If you're thinking of riding the next meme stock mania, be sure to sell in about 2 weeks. Check out CNBCPro today. Pro Be sure to get pumped then dumped by buying Wendy’s should be the title. Pro Pro For all those who are new to this working from home Bitcoin trading options Here's a little tip: Get a trusted Bitcoin expert and stick to him GeorgeLinf32 Invest and play at similar times each day. Because : In times of chaos, your investment is your anchor to success⚖️

Stock Futures Waver After S&P 500 Hits RecordU.S. stock futures were little changed a day after the S&P 500 nudged up to a fresh record as investors weighed rising inflation against evidence of a healing labor market. good Any outrage about RACIST Hunter? Imagine if Donald Trump Jr. used the N-word. 'Hunter Biden used the n-word multiple times in casual conversation, text messages show' Casually uses the n word? Hunter Biden is racist like his Daddy Joe I’m not sure if they still have tours. Please Americans you should visit Hitler’s bunker in Austria/Bertsegarten and you’ll be surprised. We just hear one side of the story. They don’t have statues of Hitler, but in America we’ve statues of Confederate men.