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Start Investing for Inflation: Strategists

Published: Monday, 12 Oct 2009 | 5:34 PM ET

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By: JeeYeon Park
CNBC News Associate

Markets mostly traded higher on Monday, as better-than-expected earnings results began trickling in, boosting investors' optimism about the overall earnings season. Leo Grohowski, CIO of BNY Mellon Wealth Management, and Charles Kantor, managing director and portfolio manager at Neuberger Berman, shared their market insights.

“In the short to medium term, the market is heading higher,” Kantor told CNBC. “We have a huge move from risk aversion to more risk taking, confidence is building and now earnings have to come through.”

Based on market confidence, Kantor said it’s appropriate for investors to own more equities.

"We own more equities today than we did during the March lows," he said. "We’ve been buying equities that we think can grow in this environment that are described as overall tepid."

Kantor added that Treasury index inflation bonds remain underowned, and told investors to focus on TIPS (Treasury Inflation-Protected Securities), as inflation will likely rise above 2 percent.

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In the meantime, Grohowski said he has a target of 1,125 on the S&P, based on a $75 earnings number for next year.

“The path of least resistance in the near term is higher,” he said. “For the next 12 to 15 months, as long as investors aren’t expecting much more than a mid-to-high single-digit price rise, they should be sticking with stocks.”

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Grohowski said investors shouldn’t have to worry about inflation for the next couple of months to possibly the next few quarters.

“But in positioning portfolios for the next 3 to 5 years, it’s very important to recognize the risk of rising interest rates and potentially higher inflation,” he said.

“So given the dramatic pullback we’ve seen in commodities and even given a slight year-to-date run in some, this is a good entry point for commodities and it’s also a good time to be reallocating into the emerging markets.”

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