Investors may be on the lookout for inflation hedges after better-than-expected consumer price data failed to keep the broader market afloat on Tuesday.
The Dow Jones Industrial Average, S&P 500 and Nasdaq Composite all closed lower on Tuesday despite the Labor Department’s Consumer Price Index showing a lower-than-expected increase in August.
The financials sector could offer some protection against a modest rise in inflation given its largely fixed operational costs, New Street Advisors Group CEO and founder Delano Saporu told CNBC’s “Trading Nation” on Tuesday.
His top pick in the space was JPMorgan for its “great loan book,” investment banking prowess and lower-than-usual valuation as of the last several months.
“This is one that’s a leader in global investment banking fees with 9% of the wallet share,” he said. “If you look at what they’ve traded at in the last three months as yields have lowered, this may be an opportunity for investors that have liked this stock to come back in at a more favorable price point.”
If inflation substantially rises, Saporu recommended turning to cryptocurrencies as stores of value.
“Cryptocurrency for people is a great hedge,” he said. “This is something that I’ve been adding … to my portfolio for myself and clients. You’re seeing the price floor come in. We’re seeing a little bit of a rise since about July [and] some better news flow.”
Joule Financial’s Quint Tatro backed a more traditional store of value: gold.
“You would think that gold, which is traditionally a hedge against inflation, would have been rising during these abnormally high CPI prints, and that has not been the case,” the firm’s chief investment officer said in the same interview.
But while some price increases — for automobiles and transportation, for instance — are likely transitory, rising costs for everyday goods and services may have more longevity, Tatro said.
“We don’t see that going away,” he said. “People are going to say, ‘Hey, this is not transitory. This is here to stay,’ and gold will finally play catch-up.”
His top stock recommendation was Newmont Mining, the world’s largest gold miner.
“Newmont has an incredible balance sheet. It is truly a proxy for gold. It should move in lockstep with gold if we’re right, and we get paid almost 4% to wait,” Tatro said, adding that his firm bought shares of the company in response to Tuesday’s CPI print.
“I think it will do very well,” he said. “You’re getting it at a discount, and I believe that it will continue to rise with gold if we continue to see core inflation move up as well.”
