The world, and the United States in particular, will not know the nature of the looming inflation until at least September, according to Tony Minopoli, president and chief investment officer at Knights of Columbus Asset Advisors, a financial management firm with $28 billion in AUM.
The Federal Reserve Board and others feel any upcoming inflationary trends are transitory.
“But what if the Fed is wrong?” Minopoli said in a recent interview. The answer to that question will shape all aspects of investors’ and other individuals’ economic life for the near future.
The solution depends, in part, on whether the recent growth in the economy is made up of savings or accumulated wealth. “Savings will come back into the economy quickly as the country recovers from the pandemic, pushing inflation, while wealth will come back in more slowly,” he said.
“There is a tremendous amount of money sitting on the sidelines right now,” he noted. How it will be absorbed into the economy is important. The U.S. added $4 trillion in economic growth since the pandemic hit, Minopoli said. Gross domestic product, which declined a record 31.7% in the second quarter of 2020, rose 6.4% in the first quarter of 2021, according to the Federal Reserve, with forecasts of full-year 2021 GDP growth set at 7%.
“We are spending a lot of time studying whether the Fed is wrong. There is a lot of pressure on prices now and on wages,” which fuels inflation, he said. “This is a tremendously interesting time economically, but it could be volatile.
“Right now, the rising inflation data looks high because it is year-over-year, and this time last year people were in lockdown. Come September, we will know more about whether this inflation is transitory or more deeply rooted,” said the Knights of Columbus Asset Advisor executive. The advisory firm is a subsidiary of the Knights of Columbus and focuses on ethical and ESG investing.
The sectors Minopoli sees benefiting in the reopening are payment companies, restaurants and even the segment of retail that successfully adapted to the pandemic restrictions.
“Those businesses had to squeeze out inefficiencies during the pandemic and will benefit from that now,” he said. “In addition, restaurants adapted by expanding delivery and pickup services. Now they will add the renewed foot traffic.”
For those reasons, Minopoli said companies such as restaurant chain owner Darden will do well. He also is focused on cyclical companies and companies benefitting from the reopening economy in sectors like travel and leisure and entertainment, and payment companies such as PayPal and MasterCard. Accenture, Apple, BestBuy and Penn National Gaming also look good, he said.
For the next ten to 20 years, baby boomers will determine how retirement will be defined and what retirees’ spending will look like, he said. There will be massive roll overs of money from retirement plans and then massive transfers of money. Advisory firms need to look for the companies that will benefit from those shifts.