The S&P/TSX Composite Index has been on an uncertain trajectory in recent months, as the economy in the region shows signs of fragility. The Canadian benchmark index is down by 5.69% from its March 22, 2022, high at writing. The bull market lasted around two years and ended abruptly when the index dropped by 10.45% between April 20 and May 12, 2022.
Many investors are bullish on another V-shaped recovery similar to the 2020 crash. However, it is possible that the market will not give us another one of those this time. The Bank of Canada (BoC) and the U.S. Federal Reserve are preparing to enact further interest rate hikes to cool down inflation. The markets could be volatile until the interest rate hikes deliver results.
Increasing interest rates can have a negative impact on economic growth, but it is necessary to keep inflation under control. Until inflation comes down to reasonable levels, the BoC and U.S. Fed will likely continue introducing interest rate hikes.
The recent developments have left many publicly traded companies underperforming on the stock market. However, rising inflation has provided tailwinds for the energy sector. Enbridge (TSX:ENB)(NYSE:ENB) has put up a stellar performance, beating the broader market by a significant margin.
We will look at the situation to help you determine whether investing in Enbridge stock could be a wise move right now.
Image source: Getty Images
The inflationary environment is not going away soon
Increasing benchmark interest rates has historically managed to cool down inflation in the past. Nobody wants to pay more for the same things each passing year. Unfortunately, bringing inflation under control takes a considerable amount of time. The interest rate hikes are designed to bring the situation under control.
Consumer-facing companies will likely bear the brunt of rising inflation until the interest rates have a significant impact on changing consumer behavior. Stock market investors with a long investment horizon can use the environment to increase their positions in high-quality companies for long-term wealth growth. Investors looking for short-term profits might not enjoy what could follow in the coming months.
Rising commodity costs in inflationary environments do not mean bad news for every company. The energy industry thrives on more substantial profit margins created by rising oil costs. Enbridge stock stands to benefit from the trend due to the high demand for its services.
The Calgary-based $120.33 billion market capitalization energy transportation company is responsible for transporting a significant chunk of traditional energy products used in North America.
Enbridge plays a vital role in the North American economy, boasting the most extensive energy transportation network. The energy sector looks incredibly robust in light of the current situation, and pipeline companies are likelier to see greater profits, as the broader market enters a consumer-facing recession.
Foolish takeaway
Enbridge stock trades for $59.27 per share at writing, and it is up by 19.64% year to date. It boasts a juicy 5.80% dividend yield at current levels. Suppose that you want to invest in a high-quality asset that can deliver reliable returns through the current market environment and beyond. In that case, Enbridge stock could be a viable investment to consider.
