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‘Copper is becoming the next oil’: strategist on inflation concerns

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Kathryn Kaminski, Portfolio Manager and Chief Research Strategist at AlphaSimplex, joins Yahoo Finance Live to break down investors’ inflation concerns and outlook for markets amid the pandemic.

Video Transcript

JULIE HYMAN: We're just a few minutes before the opening bell here this morning. Not seeing a lot of movement here in the futures as we get set up for the opening bell. But where we are seeing a lot of movement is in commodities as of late. And not just today, but we've seen this monster upward move in the prices of things like oil and the ags and copper as well. And that, of course, has sparked a lot of discussion about inflation.

Katie Kaminski is joining us now, portfolio manager and chief research strategist at AlphaSimplex. And Katie, I know you're one of the many folks who is watching inflation as well. How sticky do you think it's going to be? And how is it, sort of on a day-to-day basis, really informing your investment strategy right now?

KATHRYN KAMINSKI: So this has been a fantastically interesting period for commodities. I mean, if you look at copper, just go take a look at the price over the last 10 years. You can really see that copper is becoming the next oil, in some sense. It's our green version of oil. And the price has just really skyrocketed. And so for momentum traders like myself, we are really seeing these phenomenal opportunities in commodities, where most investors don't realize that bonds and stocks have done a lot in the last 10 years. But frankly, commodities have been one of the few assets that have been in a downward trend in most cases.

And so, now we're really seeing that commodities are the leader of where we could be going, going forward in terms of inflation. And that's sounding alarms for a lot of our clients and people we talked to who are concerned that as commodity prices get this high, there will be ramifications. And this will have trickle-down effects in terms of what things cost for us in terms of the companies that we are invested in and the products we buy.

BRIAN SOZZI: Katie, if one really wants to crush inflation-- they want to put up big portfolio gains while inflation is running rampant-- and it is starting to-- what stock should they be trading right now?

KATHRYN KAMINSKI: They should be trading stocks that have some commodity exposure that is in a positive direction. And they should be trading things that do well as well with duration. Because what's going to happen is, if we see commodities moving higher and inflation increasing, we should anticipate in the longer run to have somewhat a period of higher rates at some point. And this means that things that might actually have a relative advantage in that environment would be good investments. So that's why we've seen this recent rotation into value and other sort of materials and raw materials type related stocks.

MYLES UDLAND: Katie, what do you make of this idea that peaking growth could lead to a tough period, whether it's six months, 12 months, for the equity market, kind of a reverse maybe of what we saw last year, where the economy was in the tank, and the stock market did well? Are you thinking through that idea? Does that appeal to you at all? Are you positioned around a thesis in that direction?

KATHRYN KAMINSKI: Well, I think that we've seen that most people are in the same position as us right now, and that we see that the signals are a little bit mixed, and that things have recovered so much. And this reopening trade has gained so much momentum that we wonder if there are going to be some cracks or some setbacks that may actually create some turbulence in the future. Inflation is probably the largest one.

And in February, we had a little bit of a scare that kind of helped us to realize that if we do actually see higher rates as a result of inflation pressures on the longer end of the curve, that that could actually change the narrative for how our investments perform. So in our world, it's really a pro-equities, but with some caution, pro-commodities environment and a little bit more mixed on what will happen with fixed income, as well as the dollar.

JULIE HYMAN: So, if you could dig into it just a little bit more, when you say pro-equities with a little bit of caution, what does that mean exactly? What kind of waiting, for example? I don't know if you can dig into sectors at all and talk to us about where your position there. But how are you thinking about those issues?

KATHRYN KAMINSKI: Well, if you think about the equity markets right now, there's a lot of positive signals. We look at what we've seen in earnings growth that's been very positive. We've seen a really fantastic first quarter for many firms. But we've also seen that there's other positive signals in terms of reopening out of this pandemic. But on our side, we obviously are always thinking about what the concerns are. And I think the concerns are coming more with the commodities.

And that's why we care so much about these numbers. Because the trickle-down effects and the discussion of whether this is a temporary or a permanent inflation bump is really where people are concerned. Because if it is more persistent, we're going to see those effects a little bit different across different sectors. I mean, I wouldn't-- any sectors that have a little bit more exposure to duration or things that could be exposed to costs related to materials or raw materials-- just think about the shortage on chips right now-- are areas where you're going to see some differentiation going forward in terms of equities.

BRIAN SOZZI: Katie, any new trades you've put on ahead of the jobs number? It looks like tomorrow could be a pretty big headline beat.

KATHRYN KAMINSKI: Yeah, I think-- I mean, I think that's not really the way that we think about we trade the markets on that frequency. But we definitely have seen some positive signals in equities that have gained some momentum recently. The difference between tech and also large cap, small cap, has been a little bit more interesting this year as well. And how we've seen across different sectors, so US versus Europe, has also been a play more interesting lately. We've seen-- I would expect tomorrow's numbers could be very bullish for the US, whereas Europe has wavered and is trying to catch up in some of their sectors as well.

JULIE HYMAN: Yes, most definitely. Katie Kaminski, thanks for being here, portfolio manager and chief research strategist at AlphaSimplex.