In January, the Consumer Price Index (CPI) unexpectedly rose to 3%, surpassing the expected 2.9% annualized inflation rate which is still far from the Fed’s 2% target. This was the highest inflation level in six months, suggesting more monetary policy work needs to be done to curb the cost of living.
That usually involves either keeping interest rates steady or even hiking them up again, instead of lowering the borrowing costs. However, it is also the case that January typically has higher inflation rates because businesses raise prices and fees for the new year.
“We recommend waiting for February’s data, when the new seasonal factors look set to dampen the seasonally adjusted index more than in previous years, before judging how the underlying trend has evolved.”
Sam Tombs, chief economist at Pantheon Macroeconomics
Moreover, President Trump views cutting interest rates as the best course when coupled with tariffs. Suffice to say, the stock market would prefer the interest rate cutting direction, given that more capital would be available for cheaper to invest and boost profits.
Nonetheless, in the case that February shows stubborn inflation beyond the January effect, it would be prudent to prepare. Fortunately, these stocks tend to perform well in higher-inflation environments.
Walmart
Over a one year period, the largest US employer grew its stock by 76% to the current price of $103.16 per share. In February 2024, we had hinted that WMT stock is one of the safest bets in all macro environments.
But in times of higher-than-expected inflation, Walmart Inc (NYSE:WMT) is a particularly effective hedge due to its advanced supply chain logistics. In turn, the retail chain can afford to keep prices competitive (low). Therefore, when customers tackle the cost of living, Walmart is the first on their minds, which boosts the company’s bottom line further.
This was apparent during the 2021-2022 inflation boom, making consumers prioritize affordability above all other considerations. As a grocer of choice, Walmart managed to boost its US sales by 15% from 2020. The company also takes care of its shareholders by continually raising dividends, making it a dividend aristocrat stock.
At the moment, Walmart has a dividend yield of 0.8%, with an annual payout of $0.83 per share. Although historically high retail theft is still a major concern, Walmart CEO Doug McMillon has no qualms in cutting the losses by closing stores. Additionally, the company keeps innovating with new solutions to curtail shoplifting without disrupting regular customers.
In other words, Walmart’s deep pockets for R&D is a major advantage against less able competitors, who also suffer rampant theft. Against the current price of $103.16, investors should expect the average WMT price target of $108.43, per WSJ forecasting data.
Meta Platforms
Although not a traditional hedge against inflation, Meta Platforms Inc (NASDAQ:META) stock has many advantages as part of the Big Tech. Over a year, META stock is up 52% to current price of $719.77 per share.
Under the Trump admin, Mark Zuckerberg clearly signaled that META is no longer an arm of the opposition. This started with an apology letter for colluding with the Biden admin to deplatform Americans, which then extended to canceling third-party “fact-checkers”.
If Zuckerberg’s intentions trickle down, this may loosen the company’s ideological capture, which would make it more competitive against Alphabet (NASDAQ:GOOGL) and Microsoft (NASDAQ:MSFT). Primarily, Meta’s heavy AI investment into open-source Llama model shows accelerated adoption, having reported over 650 million downloads by the end of 2024.
Meta’s core business still holds social media dominance across Instagram, Facebook and WhatsApp, making it an ideal foundation for AI-powered targeted ads. In turn, advertisers get more out of their buck with more insightful tools such as Meta Advantage.
In short, Meta’s wide moat is likely to only increase under the Trump admin, especially now that content moderation doesn’t have to carry such a heavy burden. It is also expected that Meta will continue to boost shareholder confidence with dividends, a novelty for the company introduced in February 2024.
Against the current price of $719.77, the average META price target is $758.87 per share.
Vanguard Real Estate
Just as the “lock her up” slogan materialized into nothing during Trump’s 1st presidential campaign, it is exceedingly likely that the same will happen with “mass deportations now”. The U.S. Immigration and Customs Enforcement (ICE) had already stopped reporting daily deportation figures, as they showed a rate trajectory far below campaign promises.
For investors, this is good news for US-based Real Estate Investment Trusts (REITs). Not only do they benefit from sustained rental demand but also for commercial properties such as shopping malls, in which immigrants spend their income.
More importantly, whenever inflation rate rises, property managers can simply offload the costs to tenants. In fact, many REITs in the industrial sector tie their leases to inflation indices. As the cherry on top, real estate is both a scarce and tangible asset.
Given it is still unlikely that the Fed will opt to raise interest rates to combat inflation, relatively debt-loaded REITs are also safe from this vulnerability vector as well. For investors willing to cover all of their REIT bases, Vanguard’s ETF is the most diversified choice, with industrial, retail, health care and telecom having the highest weights above 10%.
VNQ also covers data center REITs at 9.5% weight. Since the inception in September 2004, Vanguard Real Estate Index Fund ETF Shares (NYSE:VNQ) has had an annual performance of 7.56%, consistently outpacing inflation rates.
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Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.