Stocks to withstand inflation comeback, says Bessemer Trust's Rebecca Patterson – CNBC

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Inflation fears may be sparking nearly daily swings in the market, but Bessemer Trust’s Rebecca Patterson doesn’t see it as a reason to get bearish on stocks.

Patterson, the firm’s chief investment officer, doesn’t see the jitters rattling Wall Street.

“You can have rising yields and rising equity values,” the CNBC contributor said Wednesday on CNBC’s “Trading Nation.”

Besides fundamentals supporting growth, Patterson believes this month’s correction flushed out much of the investor euphoria in the market. She considers herself “constructive” on stocks.

“A drawdown of 10 percent or 11 percent in equities — that’s typical for a given year even when equities end up,” she said. “We now have, I believe, three [Fed interest rate] hikes discounted in market valuations for the rest of this year. And the equity market, so far, doesn’t seem to mind.”

Her caveats: Rises in Treasury-bond yields must be gradual, and the economy must be strong enough to sustain them.

“The worry would be if we had more signs of economic weakness at the same time we have inflation. That’s a scary stagflationary environment,” Patterson said. “Higher yields then go with lower equities. I don’t think we’re getting that.”

Fears about inflation heightened after recent government data showed a strong gain in consumer prices and the biggest jump in wages since the Great Recession. The consumer price index report on Wednesday sent 10-Year Treasury yields within a hair of 3 percent.

Patterson acknowledges conditions are ripe for volatility to continue its comeback after 2017’s unusual calmness. On Wednesday, the Dow, S&P 500 and Nasdaq gained more than 1 percent after spending part of the morning in the red — a fluctuation that was rare to see last year.

“I think the Fed is relieved to see at least a little volatility in equities,” said Patterson. “The very low volatility environment, [and] the straight line up for stocks frankly made them uneasy. So, today feels more like a normal environment.”