PPI Volatility Creates Sector-Specific Winners and Losers: Where to Invest Now

The latest Producer Price Index (PPI) data reveals a stark divergence across sectors, with energy prices plummeting while select industrial goods defy disinflationary trends. For investors, this split offers a roadmap to capitalize on firms with pricing power or hedging strategies, while steering clear of margin-crushing industries.

The PPI Split: Energy Collapses, Industrial Goods Hold Steadfast

The April 2025 PPI report shows energy prices diving 4% year-over-year (YoY) amid sharp drops in gasoline (-11.1% month-over-month) and crude petroleum (-4.9% in April). This collapse has dragged the overall final demand PPI to a 2.4% YoY increase—its lowest since late 2024.

But industrial goods tell a different story. Steel mill products surged 5.9% in April alone, while lumber prices climbed 1.7%, fueled by construction demand and supply-side constraints. These gains highlight a critical divide: energy-driven deflation vs. select industrial inflation.

Investment Play 1: Bet on Industrial Goods with Pricing Power

Firms in sectors like construction materials and steel stand to benefit from sustained price hikes. Look for companies with:
- Supply control: Steel producers like U.S. Steel (X) or Nucor (NUE), which have raised prices despite global oversupply due to tariffs and infrastructure demand.
- Hedging strategies: Lumber firms such as Weyerhaeuser (WY), which lock in raw material costs to protect margins.

Investment Play 2: Short Energy-Exposed Firms, Hedge with Commodities

Energy’s rapid deflation is squeezing margins for oil refiners and chemical manufacturers. Investors should:
- Avoid: Refiners like Marathon Petroleum (MPC), whose March earnings fell as gasoline margins collapsed.
- Hedge: Use ETFs like United States Oil Fund (USO) to short crude exposure or pair with inverse energy ETFs.

The Services Sector’s Hidden Risk

While energy and industrial goods dominate headlines, the services sector’s worst monthly decline since 2009 (–0.7% in April) signals broader margin pressure. Airlines (DAL) and machinery wholesalers face brutal pricing wars. Investors should favor firms with direct cost-pass-through mechanisms, such as railroads (UNP) or utilities (DUK) with regulated rate frameworks.

The Bottom Line: PPI Volatility Demands Sector Precision

The PPI data isn’t a uniform bearish signal—it’s a call for sector-specific scrutiny. Investors who focus on industrial resilience, energy hedging, and services with pricing discipline will outperform. The clock is ticking: as disinflation broadens beyond energy, now is the time to act.

Ruth Simon’s analysis underscores that PPI volatility isn’t a macroeconomic dead end—it’s a strategic filter for spotting winners in a bifurcated market. Move swiftly before sector splits deepen.