Stagflation is inflation associated with a period of declining economic output. Right now, many investors are concerned that we have already entered a period of stagflation, with continued price increases and the labor market still struggling to fully recover. Supply chain bottlenecks continue to strain the full economic take-off, while concerns over Delta variants have increased pressure on an already conflicting workforce.
See: Why Raising the Cost of Living by 6% Inflation for Social Security Could Be a Double Edged Edge
Find: Leading Economist Sees Potential 1970s Inflation Looming
Analysts and consumers’ perspectives vary on the extent of stagflation.
Economist Carl Weinberg believes that inflation expectations are still being driven by a “temporary wave of supply problems” and that there is no sign of continued upward pressure on prices, in a conversation with CNBC.
“If ‘stagflation’ means ‘the 1970s’, a period of wage-price spirals and high unemployment, that is clearly not it,” wrote Andrew Sheets, Morgan Stanley strategist.
Consumers, however, are not so convinced.
According to Fox News, a new Deutsche Bank survey found that three-quarters of those surveyed feared that rising inflation rates and bonds would become the main factor negatively impacting market stability, according to Fox News .
One of the most proven strategies for fighting inflation is to “take your time” in the market – or keep investments in mind for the long term and not let nervousness push you to sell everything. Stagflation, historically, has been temporary, meaning that acting on long-term investments due to temporary conditions will only damage a long-term portfolio.
Ryan P. Johnson, CFA, CFP, director of portfolio management and research for Buckingham Advisors, says the best thing you can do is focus on owning stocks of companies that have fixing power. award, “which often comes from innovation,” he says. Tech companies that focus on new and popular creation, in our time, for example, renewables and infrastructure, are a good example. He also recommends âavoiding long-term bonds that could generate low returnsâ and âfocusing on owning real assets that generate positive cash flowâ such as mortgages, mortgage companies and the equipment. He cautions against commodities, advising to “treat exposure to commodities as a trade and not as a long-term investment.”
If you are one of the millions of Americans who started investing for the first time this year, now is a good time to reassess your portfolio. If investing is new to you and you’ve been riding the popular wave of stocks from 2020 to 2021, you should expect a period of volatility with potential corrections from 2020 highs.
However, if you believe in the sustainability of your investments, the best thing to do is to hold on. The most important investments are those that are designed to withstand peaks and troughs throughout different economic cycles. If you aren’t so confident in them, even if they gave you a pretty penny last year, maybe now is the time to part with once-profitable options.
Jerry Braakman, chief investment officer of First American Trust, told Bloomberg: âWe’re going to have a decelerating and still growing economy and inflation is going to stayâ¦ so we’re going into this stagflation. In this scenario, REITs and technology still tend to do well and gold starts to look attractive, he added.
So if you’re looking for a shake-up of any kind, real estate investment trusts and tech stocks tend to perform well during times of stagflation, as these are two sectors known for their long-term investment power. In addition, gold has also long been used as a safe haven, as it retains its value even in times of crisis.
See: Bringing bacon home costs 28% more – Relentless inflation pushes prices up to 40-year high
Find: Powell “Frustrated” that COVID-19 vaccines and supply shortages likely to push inflation into 2022
Christopher Jones, financial advisor to Edward Jones, recommends consumer staples such as cosmetics, toilet paper manufacturers and food distributors because they âtypically outperform consumer discretionary products in times of inflation. growing, as well as utilities and energy, because there is a generally positive correlation between oil prices and inflation. “
This article has been updated to add comments from Ryan P. Johnson and Christopher Jones.
More from GOBankingTaux