"Wage inflation is the big bugaboo in the room that hasn't really been talked much about," according to Bob Lang, co-portfolio manager of Action Alerts PLUS.
Recently, we heard Starbucks, and Amazon, disclose that wage pressures are affecting their bottom line. What does it mean for investors, consumers, the economy?
How to Play the Inflation Trade, a free webinar that was recorded on October 28, 2021, was brought to you by our partners at VanEck.
Our roundtable discussion, hosted by Susan McGinnis included:
- David Schassler, Portfolio Manager of the Inflation Allocation ETF, RAAX, at VanEck
- Bob Lang, Action Alerts Portfolio Manager
- Nancy Davis, CIO, Quadratic Capital Management
"Corporate earnings are under pressure. Listen to all the earnings calls. Listen to CNBC. You have the CEO, CFO after CFO coming on and talking about how their margins are being pressured by wage inflation," according to David Schassler, Portfolio Manager of the Inflation Allocation ETF, RAAX, at VanEck.
Watch an excerpt from How to Play the Inflation Trade above.
Video Transcript Below:
Bob Lang: It's been pretty much flat for almost a couple of decades now. I think it's ready to rise up again. I think wage inflation is going to be something that's going to be a hindrance to earnings. We heard it last night with Starbucks ( (SBUX) - Get Starbucks Corporation Report) and Amazon ( (AMZN) - Get Amazon.com, Inc. Report). Both earnings came out, and they did say wage pressures we're putting a major crimp on their margins.
Bob Lang: So are they able to raise prices enough to offset some of those wage increases? Or are they going to make their shareholders suffer by having lower earnings? And I think last night we saw the first shot across the bow with these bigger wage increases that the answer was, it's going to hit their margins. And they can't make all these price increases stick.
So Amazon, of course, has obviously been one of the best in terms of pricing for consumers. We'll see how that goes over the holidays.
David Schassler: I'm a bit concerned about the stagflationary scenario. That's something I keep looking at and I can come back to it and it concerns me. Corporate earnings are under pressure. Listen to all the earnings calls. Listen to CNBC. You have the CEO, CFO after CFO coming on and talking about how their margins are being pressured by wage inflation.
Schassler: Eventually, they're going to have to pass them through in the form of inflation. So I think that they do, but margins are going to take a hit as well. And it's this constant cycle. And that's why you want to start shifting away from S&P-like companies towards companies that actually benefit from higher inflation. Because you're in this constant race.
Prices rise. You're trying to pass them through. Prices rise. You're to pass them through. And as this continues to happen, you're getting margin pressure. So pivoting towards assets that actually benefit from higher inflation, that's where you can actually distinguish yourself. And that's what we're trying to do.
Editor’s note. The webinar was recorded on October 28, 2021.