Inflation expectations remain ‘reasonably stable:’ HSBC’s Willem Sels
U.S. stocks fell sharply Tuesday morning following the long weekend ahead of earnings reports from many companies across all three major indexes. As the 10-year treasury yield (^TNX) continues to rise, however, HSBC (HSBC) Private Banking & Wealth Global Chief Investment Officer Willem Sels says that expectations for inflation remain relatively steady.
“If you look at the market, the market is saying that there's no deterioration at least in the risk of [inflationary pressures] becoming ingrained to some extent as well because obviously they are expecting the Fed to hike three times this year like we do,” Sels told Yahoo Finance Live. “The inflation expectations are actually reasonably stable — so still in line with the potential for inflation to come down later this year.”
Sels joined Yahoo Finance Live to discuss his outlook on inflation and what to expect in markets moving forward. He believes current movements in bond markets are already reflecting the anticipation for action by the Federal Reserve, and thus, are playing into inflation expectations for the remainder of the year.
Fed Chairman Jerome Powell told Congress last week in his confirmation hearing that if the pace of price increases does not let up, the central bank will get more aggressive with raising rates. Powell acknowledged the toll that current inflation levels have taken on Americans, but stated that demand remains “very strong” in the face of constrained supply.
In regard to investing amid this inflationary environment, Sels said that the “right strategy” is to pinpoint companies that are able to effectively pass along price increases to their customers. A survey conducted by The Conference Board found that 82% of CEOs globally said they are facing upward price pressure for inputs into their businesses.
“What is something to realize, obviously, is that when you look at the S&P 500 (^GSPC)-type companies, those typically have a better market position than the average company in the U.S. economy,” Sels said. “So our view is that you need to look at companies with strong market market positions, or also in those companies that are really seeing the tailwind from some very strong structural growth.”
Sels pointed to automation, robotics, health-care technology, and even the metaverse as being a few of the areas that may represent an opportunity in light of rising rates. On top of this, he noted that the consumer discretionary sector remains strong with the labor market’s current momentum.
“I think, generally, many of the consumer-related companies are doing relatively well because consumers want to bring their lives back to normal,” he added. “And many [consumers] actually have saved a bit, so as long as the labor market continues to improve, consumers will get the confidence to start to spend some of the savings that they have accumulated.”
On the part of the Fed, which also prioritizes the health of the labor market, Powell said that tightening policies to come “really should not have negative effects on the employment market,” as the continued pace of monthly job increases has given policymakers the confidence to raise rates without disrupting hiring.
Thomas Hum is a writer at Yahoo Finance. Follow him on Twitter @thomashumTV
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