5 ways to hedge against an inflation spike, plus what it's like to work for Cathie Wood
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Joe Ciolli
Mar 1, 2021, 03:51 IST
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Hello everyone! Welcome to this weekly roundup of Investing stories from deputy editor Joe Ciolli. Please subscribe here to get this newsletter in your inbox every week.
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Hello and welcome to Insider Investing. I'm Joe Ciolli, and I'm here to guide you through what's been happening in markets, as well as what to expect in the coming weeks. Here's what's on the docket:
The risk of an inflation shock rattled investors last week. JPMorgan's head of cross-asset strategy has five ways you can protect your portfolio from a sudden spike.
Have thoughts on the newsletter? Just want to talk markets? Feel free to drop me a line at jciolli@insider.com or on Twitter @JoeCiolli.
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Your weekly recap/outlook
This past week was a total throwback. GameStop traders ran rampant. The US stimulus outlook caused significant market gyrations. It felt like the last week January all over again.
GameStop surged 104% in the final 30 minutes of trading on Wednesday and extended those gains to 311% at Thursday intraday highs. The spike was enough to cost short-sellers - apparently gluttons for punishment - another $1.9 billion in mark-to-market losses. The rally petered out on Friday, but it was refreshing for everyone's favorite brick-and-mortar game retailer to get another couple days in the sun.
Strangely enough, the latest GameStop frenzy was largely overshadowed by a bond-market tantrum that saw 10-year Treasury yields climb to a more than one-year high. The culprit was renewed inflation fears stemming from President Biden's proposed $1.9 trillion stimulus bill.
The worry is that consumer prices will overheat as the US economy snaps back into shape, and the Fed's assurance that it will keep a loose monetary policy for the foreseeable future did nothing to soothe nerves. The most overvalued segments of the stock market - most notably mega-cap tech - sold off swiftly as the skyrocketing yields suddenly made bonds an attractive alternative.
At the center of all this going forward, per usual, is the economic recovery. The degree of progress will inform ongoing stimulus negotiations, which will stoke further debate about inflation risk. The narrative that prevails will determine whether the bond-market outburst was a flash in the pan, or a longer-term development that could upend portfolios and send stocks into another tailspin. Stay tuned.
John Normand of JPMorgan is keeping a close eye on rates, and says a small increase could make a huge difference because the economy is so leveraged. Normand says he's still "comfortable" investing today, but that might change if real rates pick up. He laid out five asset classes that will protect investors if inflation ramps up.
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