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The Energy Stocks To Watch When Interest Rates Are Rising

If you have been reading my scribblings over the last few weeks, you will know that I am quite bearish about the prospects for markets in general, including energy stocks and oil, over the next few months. This week’s inflation numbers confirmed what I have been saying for some time, and why I am not optimistic right now. The numbers indicated that here in the U.S., we are moving from the first phase of inflationary pressure, caused by jumps in commodity prices due to Covid-related dislocation of supply and a sudden surge in demand, to the second phase, where retail prices climb due to other pressures.

Commodity prices have pulled back and continue to do so, as evidenced by the small drop in the Producer Price Index on Wednesday, but the Consumer Price Index, which measures retail rather than raw material prices, continues to surge. That is because the price increases that resulted from phase one are causing workers to press for higher wages, as evidenced by the rail unions’ strike threat and in a tight labor market, employers are conceding to those demands at a higher rate than usual. Add in soaring rent costs and rate hikes making debt servicing more expensive, and any inflation relief that comes from a drop in commodity prices is being more than offset by cost increases elsewhere for manufacturers.

That means that the numbers that the Fed is watching will keep rising for a while, and therefore so will interest rates. It is the rate hikes, not the…

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