What type of stocks are most likely to do well if inflation heats up?

Guido Baltussen and two of his colleagues at Northern Trust Asset Management amalgamated 150 years of inflationary data with current market circumstances, providing practical guidance on navigating inflation. Factor strategies, particularly quality-focused approaches, emerge as stalwart solutions to weather volatile market conditions. Baltussen’s whitepaper entitled “Navigating Inflation—An Analysis of Equity Factor Performance Over 150 Years” shows that ‘quality’ stocks (companies with high operating profitability but which are out of favour on Wall Street) are the type of stocks most likely to do well if inflation heats up. This same research also determined which stocks are the best bets if inflation cools: quality stocks.

According to Mark Hulbert, a regular contributor to MarketWatch.com, the finding represents a major advance over prior studies of what type of stock performs best in different inflationary environments. Earlier studies were hampered by limited data. Until this new study, data weren’t available for periods earlier than around 1970. That meant the analysis included just one extended stretch of high inflation — the decade of the 1970s.