Don’t Expect Stocks To Save You From Inflation

If you were hoping that your stock investments would save you from the wealth-withering effects of inflation, you are sadly mistaken.

It won’t. In fact, for the most part the opposite will happen. Only one of the S&P 500 sectors will likely be a hedge while the others have historically dipped when the inflation genie jumps out of the bottle.

“That stocks protect investors from inflation is, even in the long run, a myth,” states a recent report from financial analytics firm & Company. “The effect on the S&P 500 index is adverse, although it takes a surprisingly long time to show up fully in sub-par returns.” That delay can be as much as three years, the report states.

HCWE analyzed historic producer price data going back to 1957 against S&P 500 returns. It found that a one percentage point increase in inflation would lead to a 2.1% decrease in the index of large stocks three years later. That’s an average

Or put another way, surging inflation of 8%, which is what the U.S. has seen recently, would hit the SPDR S&P 500 (SPY
SPY
) exchange-traded fund by 16% in due course, according to the analysis.

It gets even worse if you invested solely in the tech sector. An inflation jump of one percentage point would hit the sector by 4.3% three years later.

There is a modicum of good news. There was one S&P sector that saw a positive impact. One percentage point of inflation lifted the energy sector by 0.5% after three years.

That means investors who don’t see a fast end to this inflationary spurt might want to consider buying energy stocks such as those held in the iShares Global Energy (IXC
IXC
) ETF.

“Energy tends to be boosted rather than hurt by inflation,” the report states. “In sum, once sectorer iss hedge, while most others are quite the opposite.”