To The Moon

Yesterday, the yield of us 10-year Treasury bonds reached 2.884%, a high in recent three years.

The interest rate hike rate of the Federal Reserve is expected to rise by about 2.5 basis points in 2025, and the interest rate hike rate of the US futures market is expected to rise by about 2.5 basis points!

The stronger news is that US inflation has hit a 40 year high!

The CPI is as high as 8.5%, which reminds people of the famous stagflation in the 1970s. At that time, the CPI was as high as 14%, the GDP fell and the unemployment rate rose.

Now, the capital market is already worried about a strong interest rate hike or a decline in the US economy.

Under the big inflation, growth stocks have greatly killed the valuation, and safe haven stocks have become the focus of market discussion.

In the perception of many investors, consumer stocks can raise prices and then resist the impact of inflation. Under this expectation, Coca Cola rose 8.8% this year, significantly outperforming the S & P 500 (- 7.86%).

However, can Coca Cola really fight inflation?

In the 1970s, the trend of Coca Cola did not seem to benefit. As shown in the figure below, Coca Cola's share price rose with CPI in the early stage of CPI rise (1969), but when CPI soared in the later stage (1973-1974 and 1979), Coca Cola's share price fell sharply:

On the contrary, when CPI fell from a high level, Coca Cola's share price performed brilliantly or rebounded.

The principle behind this contrast is that hyperinflation has an adverse impact on consumers' purchasing power, such as progressive tax rate. Even if wages rise synchronously with CPI, the tax rate may rise, resulting in a decline in real purchasing power. In addition, the prices of upstream raw materials have soared, and consumer goods enterprises may not be able to transfer all of them to consumers.

The more optional consumption, the weaker the pricing power and the greater the impact of inflation.

For supermarkets, in the 1970s, Wal Mart's share price also fell sharply in the first wave of inflation (1973-1974), and the share price was not affected by inflation in the second wave of inflation (1978-1979).

In 1978, the S & P 500 index also rose. It can be seen that the second occurrence of the same thing can not bring a huge impact to the capital market.

Unlike Wal Mart, dollar tree broke the tradition last September and raised the price from 1 yuan to 1.25 dollars. From the perspective of quarterly performance, the effect of price increase was immediate:

For food enterprises, the current price rise has brought real benefits. For example, Tyson Foods, the first quarter report of 2022 showed that its beef sales fell by 6.2%, but its revenue increased by 25% due to the 31.7% price rise:

Due to the large income scale and low profit margin of food enterprises, at present, the rise of commodity prices has brought about the improvement of profit margin. Although the revenue of Tyson food in the first quarter increased by 24% year-on-year, the net profit increased by 139%!

The situation of agricultural company Bunge is similar to that of Tyson. Although the sales volume decreases, the price increases, driving the income skyrocketing:

Fertilizer stocks are also benefiting greatly from inflation. According to the sales data from January to February released by mosaic, the revenue of its potash fertilizer has increased greatly with the increase of price under the condition of declining sales:

During the year, the share price of mosaic soared by 99%!

From the above anti inflation stocks, whether Coca Cola and Shangchao stocks can perform well in this round of inflation needs a question mark, while food and agriculture stocks, at least at present, show a soaring trend in financial data, which is a beneficiary stock under big inflation!

$Wal-Mart(WMT)$ $Coca-Cola(KO)$ $Tyson(TSN)$ $Bunge(BG)$ $Mosaic(MOS)$