Latest / Inflation and Your Money with Fexingo: Protecting Purchasing Power and Beating Inflation / Why Your Stocks Are Rising While Your Wallet Hurts
Transcript
- Lucas: The S&P 500 closed at seven thousand four hundred seventy-three on Friday. The Dow just broke fifty thousand five hundred for the first time. And yet, the April CPI came in at three hundred thirty-two point four — that's up from three hundred thirty point two nine just a month earlier. Luna: So stocks are flying, but the stuff we buy keeps getting more expensive. That's the disconnect that's been bugging a lot of people I talk to. Lucas: Exactly. And it's not just 'stocks go up, prices go up.' There's a real structural story here. Companies with pricing power — the ones that can pass higher costs to customers without losing sales — are actually thriving in this environment. Their margins are expanding, not shrinking. Luna: Yeah, I think that's the piece people miss. We hear 'inflation is bad for stocks' — but for some sectors, it's actually a tailwind. Lucas: Right. And you know, if this conversation has been useful so far — if it made you think differently about what inflation means for your own portfolio — honestly, if today was worth a coffee to you, that's the link. It's buy me a coffee dot com slash fexingo. Luna: It's a tiny ask for something we keep ad-free. And it genuinely helps us keep doing this. Lucas: So let's dig into which parts of the market are actually benefiting from inflation right now. I think the most obvious place to start is consumer staples — think companies that sell toothpaste, cereal, toilet paper. People buy these regardless of the price environment. Luna: Right, because you can't really stop buying laundry detergent. So those companies have leverage to raise prices without losing volume. Lucas: And they have. Look at the gross margins in the consumer staples sector over the past two years. They've actually expanded by about one hundred fifty basis points on average, according to recent filings. That's because they raised prices more than their costs went up. Luna: Which means their earnings per share are growing even as the broader economy slows. That's exactly the kind of resilience the market is rewarding right now. Lucas: But there's another sector that's even more interesting: healthcare. Think about it — drug pricing is notoriously opaque, and demand is non-discretionary. If you need a prescription, you're paying whatever the market will bear. Luna: And the recent PCE data shows healthcare services inflation running at about four point two percent year-over-year — well above the core PCE of two point seven percent. Lucas: Exactly. So healthcare companies are effectively passing through cost increases and then some. That's why the healthcare sector in the S&P 500 has outperformed the broader index by about three percentage points year-to-date through mid-May. Luna: So if I'm an investor trying to protect my purchasing power, the play isn't just to buy inflation hedges like TIPS or gold — it's to own the companies that benefit from inflation. Lucas: Right. And that's actually a more durable strategy, because these companies have real earnings growth. They're not just a store of value like gold — they generate cash, pay dividends, and compound over time. Luna: But isn't there a risk that if inflation finally cools, these companies lose that pricing power? That their margins compress? Lucas: It's a valid concern. But I'd argue that the pricing power these companies have built is sticky. Once consumers get used to paying four dollars for a box of cereal, it's hard for retailers to push prices back down. So even if input costs stabilize, those higher margins tend to persist. Luna: That's a good point. The grocery store isn't going to voluntarily lower prices just because wheat got cheaper. They'll take the margin. Lucas: Right. And there's another angle here: financials. Banks, especially, benefit from a higher rate environment because they can earn wider net interest margins — the difference between what they pay depositors and what they charge borrowers. Luna: But the Fed funds rate has been flat at three point six four percent since April. If rates don't go higher, doesn't that cap the benefit? Lucas: It does. But the level matters more than the change. Even with rates flat, banks are still earning three point six percent on their loans while paying depositors practically nothing. The average savings account yield is still under one percent. So the spread is huge. Luna: So the financial sector is another inflation winner, just less obvious than staples or healthcare. Lucas: Exactly. And that brings us to the broader point: the stock market's rally isn't irrational. It's actually pricing in the fact that many companies have figured out how to thrive in this environment. Earnings have held up better than anyone expected. Luna: So the disconnect between 'stocks up, my wallet hurts' is really a story about which companies you own. If you're in the right sectors, you're hedged. If you're not, you're feeling the pain twice. Lucas: And that's the takeaway I want listeners to sit with. Inflation isn't just a macroeconomic number — it's a stock-picking signal. The companies that can raise prices without losing customers are the ones that will protect your portfolio. And the data we've seen this spring — the CPI, the PCE, the earnings reports — it all points to that same theme. Luna: It makes me wonder though: if inflation stays sticky at around three percent for another year, will the market continue to reward these sectors, or will it eventually rotate into something else? Lucas: That's the million-dollar question. I think it depends on wage growth. If wages keep rising at four to five percent, consumers can absorb higher prices and the pricing power story holds. But if wage growth stalls, we could see a squeeze that hurts even the strongest companies. Luna: So watch the jobs data, basically. Lucas: Exactly. JOLTS, nonfarm payrolls, average hourly earnings — those are the canaries in the coal mine for the inflation winners thesis. For now, everything looks intact. But it pays to stay nimble.