With or without the Federal Reserve’s involvement, Peter Boockvar of the Bleakley Advisory Group sees indications inflation is picking up.
His call comes two days before Fed Chair Jerome Powell is arranged to provide an essential policy speech at this week’s virtual Jackson Hole occasion. During his remarks, Powell is expected to tackle how the main bank can return inflation to a healthy level from historic lows.
“The Fed and any main bank constantly need to beware of what they want when they want greater inflation,” the company’s primary financial investment officer said “Trading Nation” on Tuesday. “Greater inflation is typically associated also with a greater cost of living, lowered buying power for the average customer, and also a higher rate of interest, and I believe that’s not the type of environment we must be rooting for.”
Boockvar thinks more reliable coronavirus treatments and a vaccine will assist drive inflation.
“When you get a vaccine, you’re going to have a huge pick up on the need side where people try to go back to the way they were living ahead of time,” he said. “They’re going to wish to choose supper again. They’ll desire to do things that are likewise going to be combined with that supply chain turmoil. That’s going to lead to higher inflation than the Fed desires.”
Boockvar, who has spent much of 2020 on inflation watch, predicts a significant resurgence might materialize later on this year or next year.
“Inflation, I do think, is going to surprise people to the upside,” Boockvar said.
He notes FedEx and UPS shipping additional charges expected around Christmas, surging used vehicle rates due to factory shutdowns, and doubling lumber rates as examples of supply-side inflation that’s currently struck the market.
If inflation headwinds get more severe, he cautions it would harm the year’s most lucrative plays: mega-cap growth stocks.
“Among the big benefits to pumping up the P/E multiples of these big-cap tech stocks, to use them as an example, have been interested rates that have actually essentially been pinned to the flooring,” Boockvar said.” If you do get an increase in longer-term interest rates … that might help depress inflated P/E multiples. And then, all of the unexpected a 35 times P/E stock could be at 25 times or can be at 20 times.”
This group might see obstacles, however, he anticipates inflation may add pep to sluggish value stocks.
“Financiers need to be taking a look at some of the beaten-up names that could take advantage of higher inflation,” Boockvar stated. “That’s the commodities sector such as energy, farming, commercial metals, gold, and silver –– perhaps even the bank stocks if the yield curve steepens, as I would expect it to.”