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Investing During Inflation (Part Eight)

The First Seven Parts

In the previous parts to this series, we looked at various investments to see how their returns correlated with inflation. We found some that were positive and some that were negative.

Today, we are going to see how companies’ returns in the Industrial sectors correlate.

Industrials

As you will see in the graphs below, there is positive correlation between the returns of some companies in the Industrials sector and inflation, yet there is a negative correlation between others. This very much surprised me when I did the research as I thought all would be negative.

Honeywell

Positive correlation

General Dynamics

Positive correlation.

Union Pacific

Positive correlation

MMM

Negative correlation

United Technologies

Negative correlation

Implications

Given the mixed results within the Industrials sector, It seems as though investors need to go company by company to determine whether they are appealing for investment during times of inflation. Part of the issue might be that so many of the companies in the Industrials sector are conglomerates that span multiple industries, some of which may have positive correlations and others which have negative correlations. General Dynamics is a mostly pure play on the Defense industry and it showed positive correlation while United Technologies exposure to the Defense industry is significantly smaller and showed negative correlation. I think a much deeper analysis is required to figure out which Industries within the Industrials sector are positive correlated before any conclusions are drawn.

What’s Next

I had originally hoped to write about both Industrials and Consumer Discretionary correlations in this post, but the conflicting results in the analysis of Industrials sent me down a rabbit hole of analysis so Consumer Discretionary comes in the next post.

—Mark