Pro: inflation will start to come down in the second half of 2022

The rate of inflation is showing signs it has hit a peak, and it will start to come down in the back half of 2022, says the president of Yardeni Research.

Highlights from Yardeni’s interview on CNBC’s ‘Squawk Box’

Ed Yardeni, however, doesn’t expect inflation to return to 2.0% this year; close to 3.0% is his best-case scenario. This morning on CNBC’s “Squawk Box”, he said:

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A big contributor to inflation has been consumer durable goods, particularly both new and used cars. But I think you’re seeing resistance to those prices. The Japanese car production soared in November, suggesting they’re getting the semiconductors. That’s going to be important.

According to Yardeni, the S&P 500 index bottomed at 4,222 on Monday – an outlook sharply in contrast with billionaire investor Jeremy Grantham, who warned last week that the benchmark could crash another 42% from here.

Yardeni is overweight energy and financials

Yardeni agrees the recent sell-off in technology has created opportunities in this sector but sees energy and financials as the most suitable picks for times when rates are set to go up. He added:

I think the overweight, starting the new year should be energy. And then, of course, financials, I think, do pretty well in an environment where the economy is still doing well, rates are going up, M&A activity is very strong, and most importantly, loan demand is coming back.

The president of Yardeni Research expects market volatility to hang on for a few more months. Earlier this week, the U.S. Federal Reserve signalled it could resort to more than four rate hikes in 2022 to tackle inflation.