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Wholesale prices in the United States gained 9.6% in November from a year ago, marking the highest level since November 2010. The pace beat economists’ estimate of 9.2%. Wholesale prices increased at their fastest pace on record in November.
The core producer price index increased at a 6.9% clip; a bit slower than estimates but still the fastest ever on record, dating to August 2014. The producer price index for final demand increased 9.6% over the previous 12 months after rising another 0.8% in November. Economists had been looking for an annual gain of 9.2%, according to FactSet.
Demand for goods continued to be the bigger driver for producer prices, rising 1.2% for the month, a touch slower than the 1.3% October increase. Final demand services inflation ran at a 0.7% monthly rate, much faster than the 0.2% October rate, in a sign that the services side could be catching up in prices after lagging through much of the recovery, the CNBC article noted.
As we know, the higher the inflation rate, the more interest rates are likely to rise. This happens because lenders will demand higher interest rates to make up for the decline in purchasing power of the money that lenders will be repaid in the future. And rising rates are good for value stocks than the growth ones as the latter’s cash flows come way out in the future (read: Inflation to Stay Hot in Early 2022: ETF Strategies to Win).
As a result, there are variations in the performance of the equity indexes in an inflationary environment. Let’s dig into the details of the index performance.
Beat Inflation with Small-Cap Companies
Small-cap stocks since 2010, have topped large-cap competitors when inflation forecasts rose, according to CME Group, as quoted on the Motley Fool. This happens because due to their smaller scale of operation, small-cap companies can deal with inflationary pressures by quickly increasing prices or changing their source goods and materials.
Plus, if lack of shipping capacity is becoming an issue now, small caps stand to gain as these are normally domestically focused and are less-dependent on the overseas backdrop as well as the huge requirement of shipping. The small-cap fund, which is based on the Russell 2000 Index – iShares Russell 2000 ETF (IWM - Free Report) – should thus be less scathed from a spike in inflation.
Dow Jones Better Immune to Inflation
The Dow Jones is likely to be more immune to inflationary threats. The index has a better value quotient (0.14) than the S&P 500 (0.03), per etf.com. Plus, the Dow Jones has some materials companies in its kitty. Since material prices are the beneficiaries of inflation, these Dow Jones companies are likely to gain from the trend. SPDR Dow Jones Industrial Average ETF Trust (DIA - Free Report) is the most popular way to play the Dow Jones.
Bottom Line
Investors should note that among big three U.S. indexes, the Nasdaq seems to be the least immune to inflation as the index is tech heavy with about 60% exposure. The tech sector is high-growth in nature and thus the Nasdaq Composite tends to slide the most in a day that reports a spike in inflation.
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Best Index ETFs to Play the Surge in Inflation
Wholesale prices in the United States gained 9.6% in November from a year ago, marking the highest level since November 2010. The pace beat economists’ estimate of 9.2%. Wholesale prices increased at their fastest pace on record in November.
The core producer price index increased at a 6.9% clip; a bit slower than estimates but still the fastest ever on record, dating to August 2014. The producer price index for final demand increased 9.6% over the previous 12 months after rising another 0.8% in November. Economists had been looking for an annual gain of 9.2%, according to FactSet.
Demand for goods continued to be the bigger driver for producer prices, rising 1.2% for the month, a touch slower than the 1.3% October increase. Final demand services inflation ran at a 0.7% monthly rate, much faster than the 0.2% October rate, in a sign that the services side could be catching up in prices after lagging through much of the recovery, the CNBC article noted.
As we know, the higher the inflation rate, the more interest rates are likely to rise. This happens because lenders will demand higher interest rates to make up for the decline in purchasing power of the money that lenders will be repaid in the future. And rising rates are good for value stocks than the growth ones as the latter’s cash flows come way out in the future (read: Inflation to Stay Hot in Early 2022: ETF Strategies to Win).
As a result, there are variations in the performance of the equity indexes in an inflationary environment. Let’s dig into the details of the index performance.
Beat Inflation with Small-Cap Companies
Small-cap stocks since 2010, have topped large-cap competitors when inflation forecasts rose, according to CME Group, as quoted on the Motley Fool. This happens because due to their smaller scale of operation, small-cap companies can deal with inflationary pressures by quickly increasing prices or changing their source goods and materials.
Plus, if lack of shipping capacity is becoming an issue now, small caps stand to gain as these are normally domestically focused and are less-dependent on the overseas backdrop as well as the huge requirement of shipping. The small-cap fund, which is based on the Russell 2000 Index – iShares Russell 2000 ETF (IWM - Free Report) – should thus be less scathed from a spike in inflation.
Dow Jones Better Immune to Inflation
The Dow Jones is likely to be more immune to inflationary threats. The index has a better value quotient (0.14) than the S&P 500 (0.03), per etf.com. Plus, the Dow Jones has some materials companies in its kitty. Since material prices are the beneficiaries of inflation, these Dow Jones companies are likely to gain from the trend. SPDR Dow Jones Industrial Average ETF Trust (DIA - Free Report) is the most popular way to play the Dow Jones.
Bottom Line
Investors should note that among big three U.S. indexes, the Nasdaq seems to be the least immune to inflation as the index is tech heavy with about 60% exposure. The tech sector is high-growth in nature and thus the Nasdaq Composite tends to slide the most in a day that reports a spike in inflation.