Here's how to rebalance your portfolio as these economic indicators flash 'higher for longer' inflation and rates

• Expect a re-acceleration of inflation for the rest of 2024 into 2025, says Michael Landsberg.
• High shipping rates and daily living expenses indicate that inflation could be worse than expected.

A few months ago, it seemed like the war on inflation had been won.

Wall Street strategists were expecting inflation to continue cooling down into 2025, clearing the way for a series of consistent rate cuts as the Federal Reserve insisted price increases were no longer a threat. In September, the Consumer Price Index (CPI) showed that prices rose 2.4% from last year — closing in on the Federal Reserve's target of 2%.

Michael Landsberg, chief investment officer at Landsberg Bennett Private Wealth Management, wasn't so sure. He saw signs in the market pointing to a re-acceleration of inflation in the last few months of 2024 and into 2025.

Now, it seems like Landsberg may be right. After a Trump victory, concerns about inflation are creeping up again as proposed policies such as tariffs could push prices up. And as the October CPI report showed, inflation is back on the rise, with prices increasing 2.6% year-over-year. In an interview with Business Insider, Landsberg shared the economic indicators he's watching to monitor inflation and the best way to prepare your portfolio in case of another flare up.

'Higher for longer'

Inflation could rise to 3% as early as January and hit a mid-3% level in 2025, making it difficult for the Federal Reserve to continue its rate-cutting cycle, in Landsburg's view. He's expecting the Fed to pause rate cuts in December.

Landsberg believes the Bureau of Labor Statistics' metrics aren't providing the full inflation picture. He's keeping his eye out on other economic indicators that provide a more on-the-ground look at inflation levels.

First, rising Chinese shipping rates are a telling sign of inflation. China is one of the US' biggest trading partners, so an increase in transportation costs between the two countries will likely trickle down and reflect in consumer prices.

Geopolitical conflicts in the Red Sea are contributing to the price increases, as shipping companies are forced to detour and choose longer and more expensive routes, according to Landsberg.

With 12% of global trade passing through the Suez Canal, the Red Sea region is a critical trade route for consumer basics such as oil, cars, raw materials, and electronic components. As a result, these blockades are putting pressure on global supply chains and shipping costs.

The Shanghai Containerized Freight Index, which tracks the current spot freight rates for containerized cargo departing from Shanghai, China, has remained elevated in 2024 after spiking earlier this year due to the continued blockade of the Red Sea by Houthi rebels.

"Shipping costs don't affect margins of companies as much as they're going to affect people's wallets, and that's not getting looked at," Landsberg said.

Landsberg also points to the high prices of commodities and everyday necessities. Food prices and rents are still rising. In some East Coast metro areas, rents have risen over double digits since last year, according to Redfin.

Insurance prices are another strong indicator of inflation, whether it be for cars or homes.

"Inflation in insurance, which everyone has to have all the time, is up double digits year-over-year," Landsberg said. "That affects people's wallets certainly more than just a printed CPI number."

That's not to mention the potential of wage inflation. According to October's employment report, hourly wage growth was up 4% from this time last year. If Trump clamps down on immigration, then that number could go even higher as the supply of workers falls, pushing up the cost of labor.

Rebalance your portfolio

Diversification is key in an inflationary environment by spreading out risk between sectors and asset classes, but you might be less diversified that you think, according to Landsberg.

One mistake that Landsberg sees investors making is doubling down too much on a specific investment theme. Investors bullish on AI may have devised creative ways to play the AI trade outside of the technology sector, such as buying data center real estate investment trusts and utility stocks. This can give them a false sense of security in their portfolio, as it seems like they're exposed to multiple different sectors.

However, if all of your investments across sectors are based on the AI theme, you won't experience much derisking.

Landsberg points to the market selloff in August this year, where utilities and real estate indices fared better than technology, but individual real estate and utilities stocks with significant exposure to data centers didn't perform so well.

"I tell people now that we need to be diversified on themes, not just on sectors," Landsberg said. Some other secular growth themes that Landsberg believes will drive stocks include an aging population, cybersecurity, and alternative energy.

In addition to making sure you're sufficiently diversified, there are some other steps that you can take to protect your portfolio from inflation. Landsberg identified a few inflation-benefitting trades such as energy, financials, and gold.

Some funds that provide exposure to these sectors include the Energy Select Sector SPDR Fund (XLE), the iShares US Financials ETF (IYF), and the Goldman Sachs Physical Gold ETF (AAAU)

As the end of the year draws near, Landsberg recommends taking a look at your portfolio and rebalancing some positions. If you're overexposed to technology and AI, now is a good time to put money in more inflation-resistant areas.

Ultimately, make sure you're investing in high-quality companies with a robust financial profile, he said.

"You need to have a portion of your portfolio that will do well if inflation starts to move back higher," Landsberg said. "You want companies with pricing power, companies with earnings growth."