If investors were paying attention last week, they could have seen the kinds of stocks that will do well if inflation really is rekindling. The consumer price index surged ahead at a preliminary but still scary annualized rate of 6% in March. So it's little wonder that the federal funds futures market is now giving even odds for a Federal Reserve interest rate increase of 50 basis points in an attempt to alleviate inflation fears. But are those fears justified? Most of the CPI increase was concentrated in lodging (up 3.8% for the month and 46% annualized) and clothing (up 0.9% for the month and 11% annualized). Those sectors typically show big jumps in March, and both are coming off periods of price discounting because of weak demand. And despite March's strong growth in jobs, 360,000 new claims for unemployment were filed in the week of April 5-9, according to the Labor Department. That's about 30,000 more than Wall Street and economists had expected. In addition, on April 16 the Fed reported that industrial production in March fell a surprising 0.2%, ending months of gains. Not surprisingly, the stock market has stalled as the prevailing counterforces of growth and inflation slug it out. Technical analysts call this a trading range; I call it stuck in a rut. This week, I'm recommending specific stocks to consider for a growth/inflation barbell portfolio strategy that balances out the opposing trends. There's no better place to begin looking for inflation-beaters than last Tuesday's market action.
Looking for Defensive Stocks
Last Tuesday (April 13), the Dow Jones Industrial Average dropped 134 points and the Nasdaq Composite fell 35. Investors were running for cover on fears that inflation and interest rate increases were just around the corner. Still, 113 stocks managed to hit new highs for the day. The list is dominated by defensive stocks in the energy, natural resources and food sectors. I'll draw from these to make up the inflation-fears end of my barbell.