Nov 29, 2021
The stock market could suffer a 10% correction as early as December if the Federal Reserve starts cracking down on inflation, a respected author and professor of finance says.
With inflation hitting a 30-year high of 6.2% in October, Jeremy Siegel expects the Fed will finally roll up its sleeves at its next meeting. That could mean the end of low interest rates and the beginning of market volatility.
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“When the Fed gets serious, and I think they will at this December meeting, we’re going to see some tremors,” the Wharton School prof recently told CNBC.
Even so, Siegel believes the stock market remains the only reliable source of inflation-topping returns, and that “conservative tech stocks” should perform well.
Here are three stocks that could shield your portfolio from the howling winds of inflation and turn a healthy profit, especially if you’re investing for free.
Microsoft (MSFT)
One of Microsoft’s greatest defenses against inflation is an enormous user base that depends on the company’s tech for both personal and business uses.
Check out these recent numbers: 54 million Microsoft 365 subscribers; 250 million Microsoft Teams users, 1.3 billion Windows 10 users. These tend to be highly invested customers who aren’t likely to flee to other companies in the face of modest price hikes.
The same can be said for Microsoft’s growing list of Azure clients. The company’s cloud technology is just too central to many businesses for them to shy away from higher prices.
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(If you’re going through a budget crunch of your own right now, remember that you can always keep up the momentum by investing with just your “spare change.”)
The cloud has been a game-changer for Microsoft. In the first quarter of fiscal 2022, cloud sales rose by 36% year-over-year. They were a major factor in the company’s overall revenue growing by 22%.
Microsoft’s stock price is up a whopping 51% this year.
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Apple (AAPL)
Microsoft may have a dedicated user base, but Apple benefits from customer loyalty that can border on obsession. That’s great news for inflation-era investors.
Apple’s customers have never balked at paying high prices for premium phones, laptops or watches, and their insatiable appetite for the company’s devices has made it the world’s biggest tech company in terms of revenue.
A mountain of capital and a willingness to innovate should allow Apple to keep evolving and providing long-term value. The company’s plans to reimagine the iPad and get into the electric vehicle market could open significant new revenue streams.
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When those streams start flowing, it’ll be icing on an already sweet cake. Apple’s fourth quarter, which wrapped up in September, saw revenue shoot up 29% to $83.4 billion.
Apple’s stock has risen 21% this year.
Amazon (AMZN)
How can stock in a retailer be a hedge against inflation? When that retailer is Amazon, the calculation changes a little.
Amazon remains a go-to option for online shoppers looking to save money. The wide selection of products on offer creates competition between retailers, which keeps prices in check — and people returning to the site.
Like Microsoft, Amazon is relying more and more on its cloud-computing division to drive profits, which makes the company a strong long-term play. In the third quarter alone, revenue generated by Amazon Web Services hit $16.1 billion, a 39% increase over Q3 2020.
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With a single share worth more than $3,500, Amazon might not normally be your first choice as a hedge. But you can still get a piece of the company using a popular app that allows you to buy fractions of shares with as much money as you are willing to spend.
Read More: Dave Ramsey says this 7-step plan ‘works every single time’ to kill debt, get rich in America — and that ‘anyone’ can do it
A real alternative to the stock market
The main reason Siegel is keeping his money in the stock market is because of his belief that there are no better alternatives to owning stock when inflation is raging.
"Even with a little bit of bumpiness in stocks, you have to be wanting to hold real assets in this scenario. And stocks are real assets," he says.
But stocks aren’t the only real assets out there; so are collectibles. And contemporary art, which has outperformed the S&P 500 almost every year since 1995, is a particularly intriguing option.
Normally buying works by Banksy or Andy Warhol is reserved for people who are already fabulously wealthy.
However, a new platform allows you to purchase shares in rapidly appreciating modern masterpieces without having to spend millions of dollars.
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Clayton Jarvis is a mortgage reporter at MoneyWise. Prior to joining the MoneyWise team, Clay wrote for and edited a variety of real estate publications, including Canadian Real Estate Wealth, Real Estate Professional, Mortgage Broker News, Canadian Mortgage Professional, and Mortgage Professional America.
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