What is the underlying market sentiment? Estimates suggest that inflation is the current focus. Alberto Matellán, Chief Economist at MAPFRE Inversión, wagers that the predominant market narrative is the risk of inflation, due to “the scarcity of many goods and the abundant amount of money in the market.” However, he said the upside potential on the stock market remained intact despite a slight increase in risk from two months ago: “Growth prospects currently remain high.”
In the US, the expert expects the Fed to comment on changes to the situation at the macro level. “I hope it will be noted that they’re analyzing the inflation and growth context.” Otherwise, he believes that we could be dealing with an institution that is far removed from the real economy as viewed by markets and companies. In this regard, Matellán pointed out that, although a debate may arise over the long-term, any decisions involving a change in monetary policy would be premature.
“In the United States, internal rates of return may rise more sharply amid said inflation and awaiting the reaction of the banks.”
Taking advantage of the upward trend in inflation and occasional slumps in raw materials, he sees a buying opportunity in cyclicals. “In our opinion, it is a good option given the current combination of global growth and rates, especially in companies operating within Europe,” he added. Likewise, gold, which is regarded as a classic safe haven asset against inflation, may not be best suited when it comes to investing and protecting against inflationary pressures: “It is illiquid, very volatile—just like other raw materials—and above all, it does not generate cash flows. And if central banks tighten monetary policy, gold may decline in value very quickly.
Referring to expected inflation for Europe and the US, Matellán concluded that the expected Consumer Price Index would be much lower in the eurozone than across the pond. It remains to be seen whether or not it will remain high after this bullish period; this is what will ultimately determine the policies of central bankers and investors. At these price levels, the economist believes that the European debt market situation is more anchored than its US counterpart. “In the United States, internal rates of return may rise more sharply amid said inflation and awaiting the reaction of the banks.”
Given the current scenario, Matellán ultimately recommends that small investors do not get carried away by market fluctuations and that they “set their own key investment objectives.” With higher-than-expected inflation levels, he stated that now might be a good time to sit down with advisers and discuss whether objectives—such as retirement goals, for instance—might be affected by price levels, “although that swing will be seen in very few cases.”