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.
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.”
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.