• Investors should adopt a barbell strategy with both cyclical and growth stocks, according to Jefferies strategist Christopher Wood. 
  • He expects higher inflation to support cyclical stocks, and financial repression to benefit growth stocks. 
  • He also recommended bitcoin and gold as hedges for investors.
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A new era of higher inflation coupled with central banks’ resistance to more monetary tightening calls for a “barbell strategy,” according to a top Jefferies strategist. 

Investors should take on both cyclical and growth stocks within their portfolios, said Christopher Wood, Jefferies global head of equity strategy, in a Monday note.

“Structurally higher inflation should support cyclical stocks, while growth stocks will also benefit if G7 central banks continue to favor financial repression over meaningful monetary tightening,” he wrote. 

Cyclical stocks should be favored as the pandemic could soon hit its peak, he explained. Meanwhile, the strengthening of American household balance sheets during the pandemic has made the US economy more resilient.

At the same time, growth stocks are set to benefit in a landscape of “financial repression,” Wood added, referring to artificially low interest rates despite higher inflation among top global economies.

In particular, the European Central Bank appears less aggressive on raising interest rates compared to the Federal Reserve . And China recently eased its monetary policy as fears about growth ramp up.

And as inflation remains high continues to leap and related policies of currency debasement continue in the G7 world, gold and bitcoin “remain essential hedges.”

“Credit growth to finance real economic activity, as opposed to financing asset purchases, will remain the key variable to monitor in order to assess if and when the long-term downtrend in the turnover of money reverses,” Wood said.