The lure of a strong economy with still-low interest rates
is overcoming the gathering problems of persistent high inflation, a rapid Fed
tightening cycle, and the explosion of Omicron.
But inflation is getting worse and promises to be a big
issue in 2022. December inflation was the highest it’s been (7%) in nearly four
decades and marked the eighth straight month of inflation over 5%.
The persistent inflation has prompted the Fed to reverse its
earlier “transitory” stance and make up for the lost time. The Central Bank has
already stated that it will taper bond purchases sooner and raise the Fed Funds
rate faster than originally anticipated to combat inflation.
While inflation and rising rates may be negative for the
overall market, those issues do benefit certain sectors. Commodity-oriented
companies tend to thrive in inflation, and financial stocks benefit from rising
rates. Yet these sectors have been taking it on the chin lately amidst the
surge in the Omicron variant as investors fear renewed lockdowns and a slower
economy.
The situation is setting up an interesting dynamic. The
virus surge is likely to be temporary while the other problems, inflation and
Fed tightening, will be much longer term. Sure, the virus will be in the news
and probably be a big deal the rest of January at least. But it will fade. The
other issues will be around for all of 2022.
The virus is knocking back cyclical stocks in the energy and
financial sectors ahead of what is a very promising year. These sectors should
thrive amidst inflation and rising interest rates, but the virus is making
companies in these sectors bargains.
Here are two cheap dividend payers for this high inflation
era.
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