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Of course, this outlook only makes sense if inflation is transitory. Many are skeptical and believe that we are in a new inflation regime due to the combination of the Fed’s low rates and aggressive fiscal policy. So far, the market seems to believe that inflation is transitory as several market-based measures of inflation have dropped over the past few weeks despite headline inflation numbers coming in strong. This is evident from the Fed Funds futures markets, TIPS, and the decline in Treasury yields.
If the market consensus is correct, and inflation readings are about to turn lower, then investors should adjust their strategies accordingly. 4 ETFs that could outperform in an environment of decelerating inflation are the Invesco Dynamic Leisure and Entertainment ETF (PEJ), US Global Jets ETF (JETS), Invesco QQQ Trust (QQQ), and the SPDR S&P Dividend ETF (SDY).
