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For investors growing worried about rising inflation, Goldman Sachs found a list of stocks that will perform the best with high cost pressure.
Many on Wall Street believe that the current macro environment — a ballooning federal budget deficit, easy monetary policy, and potentially more fiscal stimulus — is setting the stage for inflation to make a grand comeback. This could create a potential headwind to the stock market as rising prices and wages tend to erode profits.
“The most common concern from our discussions is that rising inflation will drive nominal interest rates higher, which in turn could weigh on stock prices in the coming months,” David Kostin, Goldman’s head of U.S. equity strategy, said in a note. Higher interest rates could drive investors into safer bonds and away from risky equities.
Talk of a pickup in inflation intensified in the past few weeks after the Federal Reserve introduced a major policy shift that allows inflation to run hotter than the standard 2% target before hiking interest rates.
Goldman screened S&P 500 companies with the highest sales, earnings, and performance sensitivities to inflation relative to sector peers. Investors who are concerned about inflation can focus on these names, the bank said.