In every market environment there tend to be winners and losers, and inflationary periods are no exception. Consumer Discretionary, Industrials, Materials and Financials have struggled in general, as David Kastner, head of the Schwab Center for Financial Research, notes.

Consumer Discretionary

“Higher energy costs and reduced purchasing power due to higher prices, in general, eat away at nonessential consumer spending, especially for lower-income consumers. Supply constraints are affecting sales and production. If the economy slows, the Fed tightens monetary policy because of mounting inflation concerns, and/or market volatility picks up, this cyclical sector could underperform.”

Financials

“Banks borrow at short-term rates (the rates they pay depositors) and lend at longer-term rates. When the Fed raises short-term rates aggressively, it typically leads to expectations for slower economic growth that can drive long-term rates lower, resulting in lower net interest margins and potentially weaker relative performance for financials.”

Industrials 

“Companies typically face challenges from higher input costs along with ebbing demand for cyclical products such as construction equipment and industrial machinery. Current supply constraints, high labor costs, and the spike in fuel costs are all headwinds for the sector.”

Materials

“Concerns about slowing economic growth can take a toll. The recent slowdown in Chinese growth could mean that materials stocks would struggle even earlier and to a greater degree than usual.”