Certain stocks are poised to gain the most if high inflation is past its peak, according to analysts from the Bank of America. The November consumer price index report showed that prices rose less than expected during the month, signaling that inflation is cooling and may have already peaked. Stocks jumped on the news, with the S & P 500 up more than 2.7% and the Dow Jones Industrial Average surging by as much as 700 points before sharply trimming gains. The less-than-anticipated inflation reading also likely solidifies that the Federal Reserve will raise its benchmark interest rate by only 0.5 percentage point on Wednesday, slowing the pace of increases in the final meeting of the year. In the past-peak inflation environment, certain stocks are set up to potentially gain, according to a Dec. 6 note by Savita Subramanian, head of U.S. equity and quantitative strategy at Bank of America Securities. In an analysis, the bank assessed S & P 500 companies whose relative performance has a strong negative relationship with their inflation composite, with a statistically significant relationship at the 95% confidence level. This means that as inflation subsides, these stocks should get a boost. The top stocks on the list include several consumer discretionary names such as Amazon and Best Buy , where consumers may spend more as price increases slow. Even though the technology sector in particular has been hit this year amid rising rates and high inflation, Citi and Goldman Sachs both see upside in the industry going forward. Both firms named Amazon as one of their top picks for 2023. Other retail names on Bank of America’s list include O’Reilly Automotive , Clorox , Ross Stores , Home Depot and Lowe’s . The firm also highlighted grocery retailer Kroger . Kroger is hoping to buy another grocer, Albertson’s, but it’s a good bet for investors even if that deal doesn’t go through, according to Bernstein . The firm sees a 25% upside for the stock following solid earnings, and that margins could expand as inflation cools. Some of these companies picked out by Bank of America have also been able to hold up amid rising inflation. For instance, the latest quarterly earnings for Home Depot, Lowe’s and Kroger bested Wall Street expectations as consumers continued to spend at the stores even with higher costs. Lowe’s even said that it isn’t feeling the effects of higher inflation in its third-quarter report.
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