uploads/// Year Break Even Inflation Rate Movement with Commodity Prices

Goldman Sachs Is Long on the 10-Year US Breakeven Inflation Rate


Nov. 24 2016, Updated 6:04 p.m. ET

10-Year US BreakEven Inflation Rate

According to Goldman Sachs, the 10-Year US Breakeven Inflation Rate will rise further. After the announcement of the US election results, the rate showed an uptick. Goldman Sachs has advised investors to go long on the rate.

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Inflation expectations

On November 9, 2016, the rate rose 5.2% after Donald Trump’s election win. The widening of the spread indicates a possible rise in inflation. Energy and metal commodities are two major inflation drivers in the US economy (QQQ) (SPY). According to Goldman Sachs, “We think there is scope for the ‘reflation’ trade to perform better in 2017 for a combination of factors.”

[marketrealist-chart id=1770105]

Trump’s administration could invest significantly in infrastructure. A rise in infrastructure investment could boost infrastructure commodities such as steel (SLX). However, Trump’s energy policy (XLE) could pressure energy commodities such as coal (KOL), crude oil (USO) (UCO), and natural gas (UNG) (BOIL). His plan to increase coal, crude oil, and natural gas production could lead to higher supplies.

However, higher production could be translated into higher revenues for energy and power stocks. Read Where Will Commodities Head during Trump’s Term? to learn more. 

There’s a huge expectation in the market that consumer spending will pick up in the economy. Retail sales have shown strong improvement in the United States in the last two months. Consumer spending could boost the consumer discretionary (XLY), personal technology, and other sectors.

In the next article of this series, we’ll analyze Goldman Sachs’s view on the European Dividend Growth Index.


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