The Dow Jones Industrial Average added nearly 70 points today after the Federal Reserve's meeting minutes from June showed that the Fed is committed to bringing down inflation, which has remained stubbornly high this year.
The Fed's minutes reiterated the fact that the Fed's rate-setting committee plans to raise the Fed's benchmark overnight lending rate, the federal funds rate, by another half to three-quarters of a percentage point at its meeting later this month.
The Fed's minutes also said "that an even more restrictive stance could be appropriate if elevated inflation pressures were to persist," and "that elevated inflation could become entrenched if the public began to question the resolve of the Committee to adjust the stance of policy as warranted."
Oil prices slipped below $100 per barrel, as investors worried about a global recession, which may already be here or that is on the way. Two of the Dow's top finishers today continued what has been a year of outperformance in 2022.
Insurance continues to fight inflation well
The healthcare insurance company UnitedHealth Group (UNH 1.60%) finished at the top of the Dow today, up about 2%. UnitedHealth is up 2.6% in 2022. The third-highest finisher in the Dow was Travelers Companies (TRV 1.00%), which finished the day up about 1.6%. Travelers stock is up more than 9% this year. In comparison, the Dow is down more than 15% so far in 2022.
Insurance stocks tend to perform well in inflation because it is one of those things that people are always going to need to budget for even when consumer finances start to tighten. This gives insurers a certain ability to pass any higher costs they incur when running their business onto their customers without hurting demand.
In the first quarter of 2022, Travelers saw net written premiums rise 11% year over year, with total revenue up 6%. UnitedHealth also saw premiums revenue rise more than 15% year over year and total revenue jump more than 14% over the same time frame.
Insurance companies can also take cash and bond holdings that mature and reinvest them into assets yielding higher interest rates.
What is the market telling us?
The fact that investors continued to buy insurance stocks today is interesting because it suggests they are still looking at sectors that can perform well during high inflation.
There was some discussion among investors that the Fed minutes may already be outdated in a rapidly evolving situation. After all, oil prices have come down and many people are still worried about a global recession, which would slow economic growth but also potentially bring down prices.
But it seems like the bulk of the market is in the camp that inflation is still a problem and hasn't necessarily flatlined yet. Insurance stocks are also reasonably well positioned to perform well in an environment with high inflation or during a recession, making them a very reasonable pick amid such uncertainty.
