Is inflation here for the long term or is it an short aberration?

Advisors and economists are debating this question at length and Aspiriant, a wealth management, family office and manager of managers headquartered in Los Angeles, comes down on the side that says it will be a short-term phenomenon.

“While we’re expecting to see higher readings on near-term inflation over the next few months, we’re still more in the Federal Reserve’s camp that once the stimulus runs its course and some of the supply issues get resolved, inflation will gradually return to where it was pre-pandemic,” David Grecsek, Aspiriant managing director, said.

“Now, we’re seeing inflation increases we have not seen in decades, but I don’t think it will have much stickiness. A lot of the increase now is around used autos and airline pricing,” he said in a recent interview. “But go forward a year and the supply curve should shift and prices will be reset lower.”

Aspiriant is hedging its bet, however, and has taken a small position in gold, just in case inflation sticks around for a while.

Looking to other areas of the economy, Grecsek said the overall market is expensive right now and some of it, such as tech stocks, is unsustainable, so an investment move away from tech stocks would be adviseable. The early second quarter earnings reports look promising for a recovery and financials are a large part of that optimism, making them a good value investment.

A trend that has made headway recently is active investing over buy-and-hold strategies. “While passive portfolios have had a terrific run in recent years, looking ahead we think the traditional passive 60/40 approach is going to be really challenged with very low bond yields and lower forward returns for broad equities,” Grecsek said.

Like many investment managers, Aspiriant finds the fixed-income market disappointing and is moving some of the money that would normally be put into investments in debt into alternative investments

“Over the near-term, we’d expect more of the back-and-forth kind of activity we’ve seen in the equity markets in recent weeks continue as the very strong economic and earnings data invites more risk-taking, while worries about the Fed keep optimism somewhat in check,” Grecsek said.

Currently, “value stocks trade at more sensible valuations in relation to growth stocks and in regard to their own history. Value stocks generally offer higher dividends, a more durable and less risky source of return,” Grecsek said. He likes names such as J.P. Morgan, Johnson & Johnson, Pfizer, Comcast and Berkshire Hathaway: good companies that should benefit as economic activity normalizes. As an example, he said Pfizer is a terrific multinational brand with excellent cash flow, yielding about 4% with good downside protection and below-market pricing. The company has a strong portfolio of pipeline drugs set to drive consistent long-term earnings growth, he added.

Aspiriant also feels the long-term outlook for healthcare and pharma in general is good because of the increased demand for medical services as baby boomers retire, recurring vaccine revenues and promising ongoing drug discoveries.