2023-05-07 23:04:00
NEW YORK (Archyde.com) – Fears of stagflation, the simultaneous combination of economic stagnation and inflation, are creeping across the U.S. stock market.
Stagflation, which plagued America in the 1970s, makes both stocks and bonds less attractive, leaving investors with fewer options for securing returns.
Although the probability of it becoming a reality is still low, it is certain that its presence is growing in the minds of investors. The background is that the US Federal Reserve Board (FRB) was forced to aggressively raise interest rates due to soaring prices last year, and there are many views that this will bring about a recession. In addition, some speculate that the recent turmoil in the banking sector will hurt the real economy’s ability to lend credit, further inhibiting growth, and that the Fed will be forced to cut interest rates before inflation can be contained. there is
A Bank of America Research April survey of institutional investors found that 86% of respondents expected stagflation to play a role in the macroeconomic picture next year.
Under these circumstances, attention is focused on the US consumer price index (CPI) for April, which will be announced on the 10th. This is because it will become clearer whether the Fed’s rate hikes to date have led to a slowdown in inflation, and strong numbers could weigh on the S&P 500’s gains, which are nearly 8% this year. .
“Stagflation is one of the growing concerns,” said Phil Orlando, chief equity market strategist at Federated Hermes. No. On the other hand, we think the economy (growth) has already passed the high point of the year.”
Average hourly wages for April, announced on Wednesday, were 4.4% higher than a year earlier, far too high to meet the Fed’s 2% inflation target. New jobs sped up and the unemployment rate fell to its lowest level in 53 years.
Interest rate futures markets are still pricing in a rate cut later this year, but the Fed decided on Thursday to raise rates by another 25 basis points and is sticking to that level for the rest of the year. .
Interactive Brokers senior economist Jose Torres expects the U.S. economy to enter a recession later this year. Given rising commodity prices and the localization of supply chains, it is likely that prices will remain high even if growth slows down, he said.
Torres, who is more bullish on high-dividend stocks such as utilities, which are expected to generate relatively higher returns when inflation puts pressure on stock prices, said, “The Fed made the mistake of continuing excessive monetary easing for too long. “It will take longer than the market expects for the US to return to 2% inflation.”
Looking back, stagflation has undoubtedly dragged down stock prices. Over the past 60-plus years, the median quarterly rate of return for the S&P 500 has been +2.5%, according to Goldman Sachs analysis, but the median rate in stagflation-hit quarters was +2.5%. It was minus 2.1%.
Quincy Crosby, chief global strategist at LPL Financial, said, “It looks to me like gold is showing signs of stagflation,” and continues to buy gold. Gold, a popular inflation hedge and safe haven in times of uncertainty, has surged to near record highs this year on geopolitical uncertainty and the U.S. debt ceiling.
Crosby is also buying more stocks, such as those in the consumer staples sector, which are expected to perform better in times of economic turmoil.
(Reporter David Randall)
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