Investors hate it when the Fed changes their mind about interest rates.
It raises uncertainties about the economy. It sparks concerns about the jobs market. Most importantly, it undermines investors’ confidence in where the stock market is heading.
In early 2002, the Fed had to come to grips with the fact that inflation was not indeed “transitory”. It meant that Jerome Powell would have to go out to the podium and start laying out a plan for fighting inflation.
That meant higher rates, and all the headaches that come with them. Consumers slow down their spending. Companies slow down their growth expectations as financing gets more expensive. And of course, all that affects the stock market negatively.
The Fed started raising rates in March 2022.
The S&P 500 dropped into an official bear market just one month later at the end of April 2022.
The damage was quick and relatively painless as the S&P 500 only lost 25% of its value from the January 2022 highs. Those losses put the market in a great place for the rally that started in late 2023 as investors looked forward to….you guessed it, the Fed lowering interest rates.
But the data is now pointing to the Fed raising rates in 2025, not lowering them.
Here’s the situation
Since September, bond market traders have been getting the sneaky feeling that the Fed would reverse their interest rate outlook. They saw the writing on the wall with talks of Tariffs and loose government budgets. The things that will turn the temperature up on inflation again.
The bond market officially moved into a bear market in November of 2024 and the 20-year+ Treasury Bond ETF is now heading back towards the 2023 lows. That’s bad news for stock market bulls.
Short term rates are also going higher right now.
Today, yields on the Ten-Year Treasury are spiking to their highest levels since April 2024. What’s significant about that? Well, April was the point in time when the Fed finally gave investors a clear view of where interest rates were heading. The view was “lower”.
Now that’s changed.
With the Ten year heading higher and bonds lower, it’s once again time for investors to start thinking about the resurgence of inflation.
Preparing for a resurgence in Inflation
Inflation-resistant investments help preserve or grow wealth when inflation erodes purchasing power.
Some options include Treasury Inflation-Protected Securities (TIPS), which adjust their principal value with inflation, ensuring returns keep pace with rising prices.
Commodities like gold, silver, and oil often gain value as inflation drives up prices.
Stocks in inflation-resilient sectors, such as consumer staples, energy, and utilities, remain stable or thrive during inflation.
Companies with a history of growing dividends provide reliable income streams to offset rising costs.
Precious metals like gold and silver act as traditional inflation hedges, while alternative assets like cryptocurrencies are considered more speculative but have potential.
Three Inflation Resistant Investments for 2025
Gold
Gold and other precious metals surged during our last bout with inflation. We’ve seen gold fall out of favor over the last four months as investors have been more interested in speculating on Cryptocurrencies but look for that to change.
The U.S. Gold Fund ETF (GLD) is one of the simplest ways to invest in gold.
No travelling to the coin shop or Costco, no additional fees to buy or sell your coins, just a small management fee and whatever commission your brokerage account will charge for the transaction.
Shares of the GLD are trading 6% from their 2024 highs because of the move to Bitcoin and other cryptocurrencies. The shares are trading slightly below their bullish 50-day moving average. This suggests that Gold is likely to begin its rally higher again from a technical perspective.
With shares of the GLD in a strong bull market trend, investors should target a move to $270 on rising inflation fears in 2025.
Constellation Energy
Utility stocks are among those that benefit from stability during higher rate environments, but investors can do better in 2025.
In 2024 we saw several AI companies initiate deals with utility companies to start fulfilling the growing need of AI’s energy demands. Constellation Energy (CEG) is one of the companies that was tapped.
In September 2024, Microsoft and Constellation announced a 20-year power purchase agreement (PPA). Constellation Energy will supply carbon-free nuclear power to Microsoft’s data centers by way of the agreement.
To fulfill this commitment, Constellation plans to restart Unit 1 of the Three Mile Island nuclear plant in Pennsylvania, which was shut down in 2019 for economic reasons.
That “Nuclear AI” aspect of Constellation Energy’s operations adds a growth aspect to the company that is not widely found among utility companies.
The growth potential along with Constellation’s quarterly dividend makes the stock a good candidate as an inflation fighting stock for 2025.
Hanes Brands
Consumer staple stock, Hanes Brands (HBI) has been on the comeback trail for the last year.
After months of building a technical trend and almost a year of improving fundamental performance, Hanes Brands (HBI) are finally working their way into a long-term bullish trend.
The stock suffered through the 2002-2004 bear market as investors looked for safety in the Magnificent Seven, not a consumer staple company like Hanes. That’s changed.
With valuation on the Magnificent Seven and other technology companies worrying investors, the market has returned to looking for value plays as we continue to see more volatility.
Hanes shares are now trading above their key technical trendlines as they head towards $10.
Currently, at $8, Hanes shares are trading on top of their 50-day moving average. That trendline is in a bullish trend itself, which forecasts higher prices for the stock over the next 4-6 weeks.
HBI shares are also trading above their 20-month moving average. This puts the stock in a long-term bull market trend with a price target of $12.50.
Hanes does not currently boast a dividend.
— Chris Johnson
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Source: Money Morning