PFF: Preferred Equities' Downside Potential Grows With Commodity-Shock

Summary

• As anticipated, preferred equities have had a weak start to 2022 as rising interest rates exacerbate duration risk factors.
• The recent shock in commodities has extended inflation, which may soon lead to even higher bond and preferred equity yields.
• From now on, I expect credit risk perception to rise as markets adjust to the "stagflationary" environment, thereby increasing preferred equity credit risk exposure.
• The large preferred equity ETF PFF has great exposure due to high allocations to the financial sector and fixed-rate shares.
• While PFF has seen formidable losses in 2022, I believe those declines may accelerate as rising prices and rates create a high recession risk.

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Today there is a multitude of factors influencing markets. Some of these factors dominate headlines more than others, distracting many from the most significant trends. In my view, one of the most important and undercovered, financial issues today is the

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