Inflation surge to 3.8% rattles investors and tech-heavy markets
Rising inflation is once again causing concern among investors. New U.S. data shows headline inflation hitting 3.8% in April, with core inflation at 2.8%. Many had assumed stocks would protect against price surges, but this belief may now be under threat. Historically, equities have struggled during periods of high inflation. In the 1970s, stocks performed poorly as rising prices made them riskier investments. The current tech-heavy market, driven by AI enthusiasm, faces similar risks due to its unusually high duration—meaning its value is more sensitive to interest rate changes.
Soaring energy costs are adding to the pressure. While commodities and energy stocks often benefit from inflation, broader stock markets suffer as the appeal of long-term cash flows weakens. Investors are taking note: the share of fund managers anticipating higher inflation has reached its highest level since the pandemic. Tech stocks, in particular, could be more vulnerable than expected. Their recent rally has been fuelled by low interest rates, but persistent inflation could force central banks to keep borrowing costs elevated. This shift would likely hit high-growth sectors hardest.
The idea that stocks naturally shield against inflation is looking shakier. With energy prices climbing and inflation data worsening, markets may face a tougher environment. Investors who assumed equities would soften the blow of rising prices could now be rethinking their strategies.
