Fear of inflation is exaggerated, but it can still trigger short-term volatility in the stock market, says UBS

UBS’s head of investment for global asset management says that investors should support an inflation rate in the short term, but concerns about a long-term increase are exaggerated.

“… Although we believe that inflation may increase in the short term when occupied demand meets the limited supply, we believe that the fear of a sustained increase is likely to prove excessive. Such concerns may still trigger attacks of market volatility – S The & P 500 futures fell 0.7% on Monday and can test investors’ determination, says Mark Haefele in a Monday note to customers.

The CIO advises investors to “continue cyclically for the recovery” against this volatile background. Cyclical stocks are those that react positively when the broader economy improves. UBS favors small and medium-sized equities globally and US major equities in finance, energy, industry, consumer discretion and healthcare.

With COVID-19 cases and hospital stays declining in the United States and vaccinations at a rate of about 2 million shots per day, Haefele expects a larger opening of the US economy in the second quarter of 2021. Congress is likely to manage a relief package north of 1.5 trillion dollars before the end of March and the Fed will remain accommodating. In addition, the S&P 500 companies’ results for the fourth quarter exceeded expectations by almost 20%. This should be a positive environment for the cyclical rotation to continue, Haefele said.

Investors worried about a rise in US inflation will see the personal consumption price index (PCE) for January released on Friday.

Meanwhile, UBS economists predict that the stimulus from Washington may be greater than necessary, the package’s effect on inflation “is likely to be small.”

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