Jurrien Timmer Profile picture
Dir. of Global Macro @Fidelity. Student of history, chart maker, cyclist, cook. Helping investors break thru the clutter. Views are mine. https://t.co/9Pn7wGwMzp

Nov 4, 2021, 8 tweets

Following up on the last thread regarding sector returns during periods of inflation: Here is the energy sector relative return during the four inflation regimes (1942-50, 1965-80, 1987-92, 2003-08): (THREAD)

And here is the retail industry group (GIC2). Consumer stocks can do OK at the start of an inflation wave, but apparently the lack of pricing power eventually takes over. /2

Next, the healthcare-equipment industry group. Huge winner during the 1940s, and did well during the 1960s and early '70s also—perhaps because both were war periods? Big pharma stocks were part of the Nifty Fifty, which carried the market into its peak in 1973. /3

And here is the financial sector. More of a mixed bag than the correlations suggest. They did OK during the 1940s and '60s, but were at the center of the storm during the S&L crisis in 1990 and again during the financial crisis in 2008. /4

Looking at the inflation regimes in a different way, the next chart shows the 2003-2008 wave, which as we all remember, ended in 2008 with a spectacular commodity boom. /5

On the left, in the chart above, is the distribution of the inflation rate since 1926 with the 2003-08 period highlighted. On the right, a scatter plot of the correlation and relative return for the 24 GIC2-level industry groups. /6

As you can see, commodity-sensitive stocks are up and to the right, and consumer and financial stocks are down and to the left. /7

And below is the 1965-1980 period. A similar story for sector relative returns, even though this regime lasted much longer and produced much higher inflation. /END

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