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Which Sectors Will Benefit from Rising Prices?

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Consumer discretionary

We talked about demand-pull and cost-push inflation in part four of this series. To put it simply, demand-pull inflation occurs when demand rises. Meanwhile, cost-push inflation is caused by a rise in input prices.

The Janus Asset Allocation team believes the demand-pull inflation will help the consumer discretionary sector. The sector could also benefit because the pace of consumer spending seems to be holding up as shown from the graph below.

More people with jobs and relatively higher wages bode well for the sector, and spending emanating from there will push inflation. This can be good for ETFs like the Consumer Discretionary Select Sector SPDR Fund (XLY) and the SPDR S&P Retail ETF (XRT) and for companies like Priceline (PCLN), Gap (GPS), and AutoZone (AZO).

Other sectors that could benefit

According to the Janus team, other sectors that could benefit from a rise in inflation are materials (XLB) and energy (XLE). The team is of the opinion that companies from this sector should be able to manage cost-push inflation because of the recent rise in commodity prices.

The Janus team further states that “Should their costs remain stable, these industries stand to improve margins as customers should be more willing to absorb price increases.”

Among tech and industrials, the team thinks that those companies “exposed to government-sponsored infrastructure projects should also reap benefits from fiscal stimulus initiatives.”

Value stocks

Though not a sector, the Janus team also expects value stocks (IWD) (VTV) to benefit in an environment where inflation is rising. These stocks “may get a reprieve from servicing their large debt loads as higher inflation eases their real repayment burden.”

This completes the Janus Asset Allocation team’s assessment of which sectors may get hurt, stay immune, or benefit from rising inflation. From equities, let’s move on to the team’s view on the fixed income market in the next article.

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