The concern of rising inflation has recently surfaced as strong employment numbers have caused fears of wage growth. In January, the average hourly pay, for example, in the US jumped 2. This is the largest jump in 8 years.

Companies may increase the prices for goods and services in order to pay for these increased salaries. This element is causing concern for investors. Higher salaries for some can bring a higher cost of living. So, what can you do, where to invest, which stock to buy in the period of inflations?

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Oil Stocks There is a positive connection between the price of oil and inflation. The consumer price index helps measure inflation in the economy by tracking a basket of goods and services by households. Energy costs in households are part of the consumer price index. When the oil prices increase, it directly affects the energy costs spent by consumers. This leads to an increase in the CPI index and then inflation.

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Oil stocks always do well in high inflation environments. Utilities Utilities are defensive stocks. People will need utilities even in a high inflation environment. When operating costs rise for energy companies, in the final instance the consumers will pay them. So, the companies will maintain their profit margin. Consumers will have no choice.

They have to pay for the newly inflated cost if they want to receive electricity, for example.

Demand in utility companies will still be strong even in high inflation periods. Healthcare as best stocks Healthcare is also a defensive stock. But investors looking to take positions in dividend-yielding stocks are allowed to buy them cheap when inflation is rising, providing attractive entry points.

The Bottom Line Investors try to anticipate the factors that impact portfolio performance and make decisions based on their expectations. Inflation is one of those factors that affect a portfolio. In theory, stocks should provide some hedge against inflation, because a company's revenues and profits should grow at the same rate as inflation, after a period of adjustment. However, inflation's varying impact on stocks confuses the decision to trade positions already held or to take new positions. In the U. When stocks are divided into growth and value categories, the evidence is clearer that value stocks perform better in high inflation periods, and growth stocks perform better during low inflation. However, high commodity prices often squeeze profits, which in turn reduces stock returns. Therefore, following the commodity market may provide insight into future inflation rates. Article Sources Investopedia requires writers to use primary sources to support their work.

These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can what will happen to stock market with inflation more about the standards we follow in producing accurate, unbiased content in our editorial policy. Board of Governors of the Federal Reserve System. Wages also affect the cost of production and are typically the single biggest expense for businesses.

When the economy is performing well, and the unemployment rate is low, shortages in labor or workers can occur. Companies, in turn, increase wages to attract qualified candidates, causing production costs to rise for the company. If the company raises prices due to the rise in employee wages, cost-plus inflation occurs.

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Natural disasters can also drive prices higher. For example, if a hurricane destroys a crop such as corn, prices can rise across the economy since corn is used in many products. Demand-Pull Inflation Demand-pull inflation can be caused by strong consumer demand for a product or service.

When there's a surge in demand for a wide breadth of goods across an economy, their prices tend to increase. While this is not often a concern for short-term imbalances of supply and demand, sustained demand can reverberate in the economy and raise costs for other goods; the result is demand-pull inflation. Consumer confidence tends to be high when unemployment is low, and wages are rising—leading to more spending. Economic expansion has a direct impact on the level of consumer spending in an economy, which can lead to a high demand for products and services. As the demand for a particular good or service increases, the available supply decreases.

When fewer items are available, consumers are willing to pay more to obtain the item—as outlined in the economic principle of supply and demand. The result is higher prices due to demand-pull inflation.

Companies also play a role in inflation, especially if they manufacture popular products. A company can raise prices simply because consumers are willing to pay the increased amount. Corporations also raise prices freely when the item for sale is something consumers need for everyday existence, such as oil and gas. However, it's the demand from consumers that provides the corporations with the leverage to raise prices. The Housing Market The housing market, for example, has seen its ups and downs over the years. The same. What about shares of gold-mining companies? Sure, there are some that pay dividends. As I write this, Newmont Corp. NEMthe biggest gold miner by market cap, yields 1.

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What will happen to stock market with inflation Video

The Impact of Inflation on Stocks, Bonds, and Cash You can only open a k account if your employer offers such a plan.

Stocks that represented virtually any online company rocketed, leading to outlandishly high valuations in the sector.

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