Those skeptical about whether inflation is on the rise need to look no further than the Commodity Index chart above to see that things are heating up. After bottoming in November, prices of commodities from scrap steel to rosin have been climbing. The upturn suggests demand growth and supply constraints are at work, which is welcomed news for many sectors. Adding to the potential of greater inflation is an uptick in wage pressure as measured by the Bureau of Labor Statistics during the past several months.

If the trend continues, businesses where the bulk of expenses are tied to fixed costs could benefit as overhead should increase at a slower pace than the prices charged to customers. This dynamic tends to boost cyclical areas such as Energy, Materials, Industrials, and asset sensitive Financials—groups that have been hard hit in recent years and are trading at depressed valuations as a result.

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Past performance does not guarantee future results.

The statements and opinions expressed in this article are those of the presenter(s). Any discussion of investments and investment strategies represents the presenter’s views as of the date created and are subject to change without notice. The opinions expressed are for general information only and are not intended to provide specific advice or recommendations for any individual. Any forecasts may not prove to be true. Economic predictions are based on estimates and are subject to change.

Investing involves risk, including the potential loss of principal. There is no guarantee that a particular investment strategy will be successful. Value investments are subject to the risk their intrinsic value may not be recognized by the broad market.

Definitions: Cyclical Stocks: cover Basic Materials, Capital Goods, Communications, Consumer Cyclical, Energy, Financial, Technology, and Transportation which tend to react to a variety of market conditions that can send them up or down and often relate to business cycles. Commodities Research Bureau BLS US Spot Index: is a measure of price movements of 22 sensitive basic commodities whose markets are presumed to be among the first to be influenced by changes in economic conditions. It has two major subdivisions: Raw Industrials and Foodstuffs. Raw Industrials include burlap, copper scrap, cotton, hides, lead scrap, print cloth, rosin, rubber, steel scrap, tallow, tin, wool tops, and zinc, while Foodstuffs include butter, cocoa beans, corn, cottonseed oil, hogs, lard, steers, sugar, and wheat. Consumer Price Index (CPI): is the most widely used measure of consumer price inflation. The CPI measures the average change over time in the prices paid by urban consumers for goods and services. The Bureau of Labor Statistics (BLS) of the U.S. Department of Labor collects the CPI price information and calculates the CPI statistics. All indices are unmanaged. It is not possible to invest directly in an index.

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