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Inflation Worries Slam U.S. Stocks. Five Market Analysts on Navigating the Noise

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Inflation fears seem to have put a lid on U.S. stocks.

The major averages fell sharply Wednesday, led by technology stocks, as investors digested higher-than-expected inflation data.

Inflation rose at its fastest rate since 2008 last month, with consumer prices surging 4.2%, the Labor Department reported.

Market analysts largely advised closely watching how inflation trends continue to play out, with one calling the sell-off "overdone."

Here's what five of them told CNBC on Wednesday:

Valerie Grant, vice president and senior portfolio manager at AllianceBernstein, highlighted a critical "mismatch" on the macroeconomic front:

"I do think that whether this is transitory or something more enduring is a very important question to address. … We're really at this period where the economy is beginning to reopen and it's reopening at different rates in different parts of the country and in different parts of the world. But meanwhile, we have demand surging. And so, we really have a mismatch between aggregate demand and aggregate supply and it will take time for this to resolve."

Sarat Sethi, managing partner at Douglas C. Lane & Associates, recommended staying diversified:

"Investors are really focused on the next couple quarters, and … inflation is front and center. Earnings we've just finished. ... What's going to drive the economy going forward? And I think right now we've got this kind of confusion. Is it just going to be tech that took us here for the last year and a half or does value come back? Does the real economy start to come back? Our view is you have to be diversified. Play in both areas. And I think if you're not diversified, you're going to have much more volatility in your portfolio, especially as we saw intraday [on Tuesday] and we've seen really since the beginning of this year."

Marko Kolanovic, chief global market strategist at JPMorgan, said the market may be getting oversold:

"Obviously, the inflation expectations going higher, yields going higher doesn't help tech multiples. And we wrote about that earlier in the year and that's sort of our focus now. I would put it a little bit into perspective. [The] Nasdaq is trading now where it was basically in January, and keep in mind in January, we had 250,000 cases of Covid per day. We obviously didn't know anything about earnings and very little about infrastructure spend, stimulus and monetary support. So, I think it's overdone a little bit overall. I think investors are a bit panicky. We still like cyclical reflationary exposure, but I think the overall market here is perhaps a bit oversold."

Haim Israel, managing director of research at Bank of America Global Research, predicted that technological adoption would only accelerate from here:

"The job market is going to be disrupted. It started before Covid. Covid has accelerated the trend. And I think now because of the acceleration of technology, that it's dominated every part of our lives, things from here on are just going to happen faster and faster. And we believe that automation, robotics, technology is going to be a big part of the new job market. We do not believe this is actually going to be a bad thing. We believe it's going to be a good thing. We believe, like we've seen with any other technological revolution, that this is going to be accretive to the job market, not destructive. So, we believe … that man and machines are going to work together in this new market."

Bob Shea, CEO and chief investment officer at TrimTabs Asset Management, said this pullback was due:

"I don't think we're terribly concerned about this. I think we were due for a correction and I think folks have been hyperfocused on inflation even though the Fed kind of telegraphed this last year in the August [Fed Chairman Jerome] Powell speech and into the September policy decision where they were really focused on maximizing employment. But … earnings were a blowout … and particularly the big mega-cap tech names. We at TrimTabs, we manage a suite of free cash flow investment strategies focusing on free cash flow, profitability and quality of earnings. And for the big mega-cap tech stocks, they blew their numbers out. Earnings were fantastic. Cash flow growth was decent. However, a minor red flag or a red flag for us was building accruals, particularly for companies like Facebook, Amazon and Tesla. And for us, that just draws into question the sustainability."

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