BMO Economics Publishes Report on Navigating Inflation

BMO Economics has released a report to help investors adjust to an environment of rising inflation and interest rates, as it creates more risk.

Bank of Montreal (BMO) is North America’s eighth-largest bank by assets. (See Insiders’ Hot Stocks on TipRanks)

Economist Commentary

Robert Kavcic, senior economist, BMO Capital Markets, said, “We continue to believe that inflation will be more persistent than most initially thought, and that interest rate hikes could come sooner, unfold faster and reach a level that is somewhat higher than expected.”

Kavcic pointed out that the current context has nothing to do with stagflation. “While most of the focus is on supply-side constraints, the reality is that demand is extremely robust, job markets are tight, and the unemployment rate is falling. That certainly is a ‘less-bad’ inflationary environment than some past episodes like the 1970s. Rather, periods like post-WWII rebuilding or the 1960s (social and war-time spending along with low unemployment, low interest rates and new technology) are closer parallels.”

Sadiq S. Adatia, chief investment officer at BMO Global Asset Management, said that BMO continues to overweight equities and focus on areas where they see good upside offsets for inflation and interest rates. It believes financials and sectors related to the reopening of the economy, such as energy, are among the North American sectors that will perform well in a context of high inflation.

Investing Strategies

The report gives several strategies to investors to deal with stubbornly high inflation. Among others, it suggests to favor Canadian equities, commercial real estate, and inflation-protected notes.

Diversifying geographically, keeping an eye on debt, and locking in borrowing costs are also suggested.

Wall Street’s Take

On November 16, RBC Capital analyst Darko Mihelic maintained a Hold rating on BMO and set a price target of C$146. This implies 6.2% upside potential.

The rest of the Street is bullish on BMO with a Strong Buy consensus rating based on nine Buys and two Holds. The average Bank of Montreal price target of C$139.20 implies 1.2% upside potential to current levels.