HomeMost PopularBrace for a Market Crash With These 3 (Surprising) New Inflation Hedges

Brace for a Market Crash With These 3 (Surprising) New Inflation Hedges

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An inflation hedge protects against currency devaluation caused by rising prices. It involves investing in assets expected to maintain or increase value. Hedging can prevent investment losses due to inflation, which reduces the real return.

For instance, the real return is negative if a stock yields 5%, but inflation is 6%. Inflation-hedged assets may retain high value despite lower intrinsic worth as investors seek them out.

When people talk about their money not stretching as far, they’re referring to inflation affecting their earnings or wealth. Inflation reduces purchasing power, so individuals aim for earnings and investments to outpace it, allowing them to afford more, even with rising prices.

Each state has its own inflation rate, influenced by its economy and fiscal and monetary policies. Inflation can affect specific areas like gas or food costs and comes in three types: demand-pull, cost-push and built-in inflation.

That said, here are three new inflation hedges that people are going crazy about.

Nvidia Is the New Gold

One of the most traditional inflation hedges is gold. It has been a top inflation hedge since 1971; during the Great Recession, gold became so popular despite its volatility and short-term uncertainties. Banks believe that having more gold is better, and thus, they bought more of it in 2022 than in 1967.

Even in 2024, inflation is still an ongoing concern, and it has been causing delays in Fed rate cuts. As per Bloomberg, investors are turning to big tech stocks like the Magnificent Seven. However, gold remains the preferred inflation hedge.

In the latest Bloomberg Markets Live Pulse survey, respondents viewed significant U.S. tech stocks as a hedge against inflation alongside gold. At the same time, 46% favored gold and nearly a third chose tech giants.

Survey respondents favored tech giants like Nvidia (NASDAQ:NVDA), Amazon (NASDAQ:AMZN) and Meta Platforms (NASDAQ:META) as the best hedge against inflation, highlighting their dominant role in the U.S. markets. Their steady profits and growth instill investor confidence in continued gains. Though reduced from 2022 highs, inflation still concerns investors, with 59% citing it as the top market risk. The following CPI reading is anticipated to sit at 3.4% year-over-year.

Three years ago, inflation skyrocketed past 2%, and Nvidia surged six times. Other tech companies like Apple (NASDAQ:AAPL) also outperformed the S&P 500 market by 50%. Although, like other tech stocks, they can be sensitive to inflation and changes in inflation rates.

In 2024, Nvidia marked a milestone and surged over 200%. The stock has exceeded $900 per share. In February, it awed the market through its excellent earnings report. The company showed $22 billion in revenue through generative AI and H100 GPUs. It also helped Nvidia get a seat at the trillion-dollar market cap hierarchy.

Investing in Farmlands

Institutional investors historically used agricultural land as an inflation hedge, but it must often be made available to most investors. In 2023, pension funds and tax-exempt vehicles held about 1,331 U.S. farmland properties worth $16.2 billion. Retail investors can access farmland assets through publicly traded REITs like Farmland Partners (NYSE:FPI) and Gladstone Land (NASDAQ:LAND).

Farmland historically performs well during high inflation due to its positive correlation and real asset nature. It correlates more strongly with the CPI and Producer Price Index than other investments. Real assets, including farmland, typically outperform traditional assets during inflation, with nominal value growth. Farmland has seen year-over-year price decreases only once since 1987, indicating value preservation despite inflation.

Farmland scarcity serves as a natural inflation hedge. The United States lost over 11 million acres in 20 years, and could still lead to more acres by 2050. Farmland proved otherwise, as it averaged an 11% annual return from years 1992 through 2020. It appreciates while generating operating cash flow, supported by the constant demand for food.

Farmland is a unique real estate investment that provides stable income and resilience across economic cycles. Moreover, the returns from farmland are not correlated with public markets. That makes them unaffected during economic shifts.

Although investing in farmland can be crucial due to decreasing arable land and global population, it is still worth an investment. In fact, regenerative agricultural practices make farmlands look enticing for investors.

Put Up a Chicken Wings Business

Chicken is reclaiming its place as a favorite food choice for Americans. With beef prices increasing, people are opting for more chicken wings at fast-food restaurants and frozen tenders at grocery stores. Meat companies like Tyson Foods (NYSE:TSN) and Pilgrim’s Pride (NASDAQ:PPC) are seeing increased profits from poultry due to rising demand and lower costs for livestock feed.

Retail sales of all U.S. chicken products rose by 3% for the year ending April 21, while pork and beef sales slightly declined. With food spending at a three-decade high, consumers opt for cheaper private-label items and cut back on branded purchases. Tyson executives noted shoppers prioritizing essentials over beef and expensive brands, but the duration of this trend remains to be determined.

Moreover, unstable U.S. cattle supply leads meatpackers like Tyson to pay more for livestock, raising wholesale and retail meat prices. Tyson executives noted ranchers still need to begin rebuilding herds. Ground beef retail prices surged approximately 12% in March compared to a year ago, with Tyson’s CEO attributing strong chicken demand to more discerning consumers.

Fabio Sandri, CEO of Pilgrim’s Pride, noted a shift to cheaper chicken items on restaurant menus. Despite overall restaurant foot traffic declines, Pilgrim’s fast-food chain sales rose 6% in the latest quarter. Shares in the second-largest chicken processor surged approximately 60% over the past year.

Bottom Line

Inflation decreases purchasing power, limiting what one can buy with the same money. That may lead to borrowing or reduced spending on non-essential items. If one’s income keeps up with inflation, there’s less for investments or discretionary spending.

Additionally, inflation may trigger a recession by reducing consumer spending and prompting interest rate hikes to curb inflation, slowing borrowing and business activity.

Common inflation hedges include gold, commodities, a balanced 60/40 stock-to-bond portfolio, REITs, rental income, the S&P 500 and TIPS. Or, you may also want to invest more in Nvidia, farmlands or perhaps put up a chicken wing business while it’s cheap.

On the date of publication, Chris MacDonald did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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