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Investors React: Stocks Drop as Inflation Rate Shocks Market

Today’s news that inflation hit a 40-year high has the market falling fast. Even for the most seasoned investor, large market swings due to scary-sounding headlines can be challenging. Especially after the rough start to 2022, today’s market downturn may have you contemplating changes to your investment strategy.

Luckily, you’re not alone! Here with their reactions to today’s news are three Motley Fool writers with their unique takes on what this all means, and what they’re thinking about their own portfolios.

Two-Fisting Twinkies on the sled to the bottom of the mountain

Kristi Waterworth: The market is a fickle beastie and it sometimes does things that don’t really make sense to me. For example, the inflation rate came in higher than expected, except… was it really that unexpected? We’ve all been to the grocery store in the last month, random generic investors included. We know milk is high, we know gas is high, so for news that inflation is high to be such a shocker is really more of a sentiment about the general atmosphere in the world than it is about the market.

The invasion of Ukraine is upsetting the entire Western world. The Congressional hearings that have been coming to a head for months are upsetting Americans. Gun violence, the planet burning, real estate prices through the roof, housing shortages, unending drought, continuing supply chain woes — oh, and let’s not forget that the pandemic is still on — are all causing a lot of emotional upheaval.

In short, the market is just twitchy because we’re all dealing with a lot. It has been since December.

This won’t last forever, but it certainly should no longer be such a surprise to anyone that investments practically across the board are sagging. I’ve stopped even looking at my crypto portfolio at all because it doesn’t really matter. Not at this point. It’s going to fly or it’s gonna die, and there’s no way I’m pulling my money out when things are this low. Might as well ride that sled all the way to the bottom of the mountain.

My stocks aren’t a lot better, but there are some in the green that give me hope. Just enough hope, mind you, to keep making buys in a bullish frenzy (within my budget, so not so frenzied, I guess). I’m mostly buying large caps as safety plays, but I’m also putting more into trash trucks, canned foods, snack cakes, paper towels, and soap. Stuff we all need. Even when those companies slump, it doesn’t take supernatural vision to see that they’ll be back.

After all, with all this pressure in the markets, who ISN’T stress eating Twinkies with both hands? Just me?

It doesn’t feel good, but I’m still buying

Jeff Santoro: I’ll admit it. It makes my heart pound a little faster when I read the headline and see the picture of some distressed Wall Street trader. “Inflation is at a 40-year high” sounds apocalyptic. But what does it actually mean for me and my investments? And can I do anything about it?

I’ll start by saying my portfolio is already hurting after the broad market sell-off we’ve seen over the past several months. Also, inflation has been here for a while, so I have already been paying more for groceries and wincing when I fill up my gas tank. Nevertheless, I diligently contribute to my retirement account each pay period, and follow my stock investment strategy. I am a net buyer of stocks. Always.

Here’s where I have made an adjustment. I am being more deliberate with where I allocate my investment dollars. I’m considering factors like a company’s balance sheet. Interest rates will likely continue to rise in order to fight inflation, so debt is going to become increasingly expensive. What companies can get by without needing to raise capital? I’m looking for cash generators when I click the buy button.

Many companies are also likely to see margin compression if they have to bear the brunt of rising costs for the goods they need to run their businesses. So who might have pricing power? What companies will be able to pass some of that cost along to the customer without decreasing sales?

I’m also considering which companies have recession-resistant (or perhaps even recession-proof) business models. For example, investments into cybersecurity across the world are not likely to be cut from the budget should a business need to reduce expenses. So I’m taking a longer look at stocks in the cybersecurity industry. 

To be clear, none of this feels good, and I certainly don’t feel like I have the silver bullet that will make this period of high inflation a non-factor in my investing life. But I do believe that continually buying strong companies that have the balance sheet to weather the storm is a better strategy than panic selling. I think I might also get some Twinkies…

Wall Street, not Stranger Things, is bringing back bad ’80s memories

Lou Whiteman: I pride myself in staying cool during downturns. I lived through the dot-com crash and the 2008-2009 crash. I saw firsthand that stocks do, eventually, bounce back, and they do so with vengeance.

But this is different. We haven’t seen inflation at levels like this in four decades. I wasn’t trading then (I was a schoolboy in Dublin). But Gen Xers like me grew up hearing about the inflation boogieman. My parents made decisions like canceling vacations or having a low-key Christmas because of the high price of gas and groceries.

Perhaps it is with those memories in mind, I find it hard to buy in right now. We’ve been hearing for a year that this inflation is “transitory,” but even if it is temporary, it sure doesn’t appear it is going away quickly.

Retailers ranging from old economy giants (Target (NYSE: TGT)) to e-commerce giants (Amazon (NASDAQ: AMZN)) have stubbed their toes. Investors are selling off airline stocks due to fears that struggling consumers will postpone travel plans. A wide range of companies are warning of the impact of high fuel and commodity prices.

Given there is nothing to suggest this ends quickly, and all the uncertainty hanging over the markets due to the economy (and don’t forget COVID!), I’m worried it is going to be a choppy summer. Ideally, in the weeks to come I am going to get my footing and start to buy. For now, the primary focus for me is making sure I don’t sell and head for the exits.

There’s a saying that “everyone has a plan until they get punched in the mouth.” This inflationary scare, much more than the 2008 crash, has been a real punch in the mouth for me. The goal is to make it through the round and be ready to come out swinging when the bell rings again.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Jeff Santoro has positions in Amazon and Target. Kristi Waterworth has positions in Amazon and Target. Lou Whiteman has positions in Target. The Motley Fool has positions in and recommends Amazon and Target. The Motley Fool has a disclosure policy.

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