Signs are growing that inflation may be more tenacious than originally expected. When inflation is stubbornly high, sectors such as Energy, Real Estate, Health Care, Utilities, and Consumer Staples historically have outperformed on average, as David Kastner, head of the Schwab Center for Financial Research, notes.

Energy

In the early stages of an inflationary cycle, energy typically benefits from the same factor that drives overall prices higher: demand that outstrips supply. Historically, the energy sector has often been one of the top relative performers when inflation in on the rise – at least until the Federal Reserve tightens monetary policy enough to slow economic growth, or excess supply causes prices to drop.”

Real Estate

“Rising inflation usually reflects an improving economy, which tends to be good for the real estate investment trusts (REITs) that make up the bulk of the real estate sector.”

Traditionally defensive sectors – Health Care, Utilities and Consumer Staples

“These sectors tend to outperform during periods of high inflation. In part, this is due to their relatively steady earnings no matter the economic conditions – people need medicine, heat, and food in any economy – and their ability to pass higher costs on to consumers.”

See – Equities: Four sectors to struggle amid higher inflation – Charles Schwab