What Market Experts Advised when Inflation Report Came Out in December 2021

Inflation and labor reports are two important indicators of how the economy is progressing. While trading stocks online, you need to watch out for what these reports tell. While it is important to analyze them, you also need to avoid knee jerk reactions. Instead, look for stocks that can thrive even in uncertain situations.

Markets Ended December 10 at Record High Despite Latest CPI

At the close of trading on Friday, December 10, 2020 stocks had ended at a record high. This was despite the release of the latest Consumer Price Index (CPI) from the US Labor Department, Yahoo Finance reported. The report had revealed further growth in inflation for November, hitting a new multi-decade high, as the CNBC chart below shows:

(Img source: https://www.cnbc.com/2021/12/10/consumer-price-index-november-2021.html )

Aftermarket trading on Thursday, December 9 had seen S&P 500 contracts gaining. They had closed in the red for the regular session following three consecutive days hitting gains. Though the Nasdaq had a 1.7% drop in regular trading, it was still heading for a 2.9% weekly return following strong gains posted early in the week.

On Friday, the S&P 500 soared almost 1% and had a record close. The Nasdaq grew by 0.7% while the Dow had over 200 points added to it, translating to 0.6%.

As Omicron Fears Eased in Early December, CPI Grew the Fastest in 30 Years

Back then, Omicron fears had eased following the initial worries. That was because Anthony Fauci, Chief Medical Advisor to the President of the United States, had revealed that the initial observations seemed to indicate that the Omicron variant is milder than the Delta variant and not as deadly as initially feared. Now we are still talking about Omicron, and its fast spreading capability has left nations in fear.

As the report said, consensus economists had already expected the CPI to rise by 6.8% from last year in November. That would be the fastest rate of growth annually since 1982. Yahoo reported that core CPI grew 4.9% from last year despite excluding prices for energy and food, which are generally more volatile. That is the fastest rate recorded in around 30 years.

What the Jobless Claims Report Implied

Meanwhile, another report also caused waves – the jobless claims report. The weekly US jobless claims had dropped beyond expectations and gotten to its lowest level since 1969, according to this Yahoo Finance report. This reportedly was lower than even the pre-pandemic levels. Job openings in the US were also greater than 11 million for just the second time in October.

Deceleration Predicted for This Year

The Yahoo Finance article we mentioned right at the beginning of this article also stated chief economist of Wilmington Trust, Luke Tilley as saying that there could be "deceleration" during 2022 - the inflation slowing down. However, Tilley also emphasized that he doesn’t imply prices heading south, rather that they need not go up in 2022 as much as in 2021. If the Fed tapers its fiscal stimulus, as it eventually did, Tilley opined that we wouldn’t be having as much of a fiscal stimulus next year as we have this year. The labor market is also expected to improve with more work returnees, which would help increase supply. Those factors would work against inflation.

The article also mentioned the view of Seema Shah, chief strategist of Principal Global Investors. She predicted that wage increases could be something employers seriously needed to think of in 2022. This would be part of the inflation pressures broadening, as the CPI data showed. However, Shah also believed that parts of the inflation situation are "starting to fade". So, in 12 months’ time, she believes the CPI could come down to 3% from the 6% to 7% level it is in now.

Stock Trading in the Inflation Era

Can the inflation actually be good for some stocks? Well, that’s the key to success in online stock trading – finding the winners in just about any market situation. Inflation need not necessarily affect all stocks. Consumers with fixed incomes would understandably struggle when inflation causes rising prices for commodities. However, people in jobs where wages also rise with the inflation will still be able to maintain their purchasing power. For companies that are ultimately able to pass on the increased costs of raw materials for production to consumers, their earnings would either be hit lower than other companies or they could even avoid the negative effects.

As far as investing strategies are concerned, you would need to identify companies that are able to pass on the negative effects, or even take advantage of the conditions causing inflation. Getting hold of such stocks could benefit your investment portfolio by maintaining its purchasing power.

Industries with Strong Growth Potential

Solar Energy

Another strategy for trading stocks online is picking up stocks in industries that have significant growth potential for the future. An example is solar energy. In a Motley Fool article, James Brumley predicted that we are about to see renewable energy burst in demand, and solar energy would be leading the charge. Brumley mentions the prediction of the Solar Energy Industries Association that the production capacity for solar power would be tripling over the course of the next 10 years in just the United States. That would make solar power the fastest-growing electricity source during that period.

Cybersecurity

Cybersecurity is an industry that would always be in demand. Online transactions, communication and even work soared during the pandemic. The trend is still set to continue in many areas even after the brunt of the pandemic has passed. Cybersecurity will always be in high demand. The article quotes the prediction by Cybersecurity Ventures that cybercrime would account for $6 trillion globally by the end of 2021. That cost is expected to grow 15% to hit $10.5 trillion by 2025.

A great stock trading strategy needs to be ready for whatever the market throws at it. With zero commission trading offered by an experienced broker dealer, you can get started without inhibitions.

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I am an experienced day trader and investor, being an active participant in Wall Street since 1990. I have experienced the highs and lows of the stock market and rely on instinct as well as hard data to make trading decisions.