Some Wall Street strategists are worried that investors have grown overly enthusiastic about the likelihood of a soft landing in the US economy in light of recent evidence of stickier-than-expected inflation.
Decline In Inflation
Most people are worried that inflation may reach a stage known as stagflation, in which price increases pick back up speed while economic development decelerates. This was most famously observed in the 1970s and 1980s, when the US was forced to contend with increased costs for over ten years after a seemingly quick decline in inflation turned out to be a hoax.
As stocks sit near all-time highs, investors should be concerned about inflation’s uneven route to the Fed’s 2% objective, according to Kolanovic and others, who were prompted by a series of hotter-than-expected inflation reports in January.
The Discussion About Inflation
In the January Yahoo Finance Chartbook, Michele Schneider, chief strategist at MarketGauge.com, identified stagflation as a major danger for 2024. When she started working in markets in the late 1970s, she saw “startling similarities” in the Consumer Price Index’s (CPI) trajectory.
(PHOTO: WirtschaftsWoche)
A Middle East war and an oil embargo contributed to the inflation tale of the 1970s and 1980s. The Vietnam War and its aftermath saw substantial government spending, which further raised costs.
These elements depict the current situation similarly. Inflation increased as a result of the COVID outbreak and recovery, while supply chain problems and oil prices were exacerbated by Middle East hostilities. Additionally, government expenditure continues.
Schneider outlined a few cautionary indicators that are currently flashing in commodities. Schneider reports that sugar futures have increased four times from their pre-pandemic price, and cocoa prices have also increased. The 2022 inflation surge highs are being pushed against by Invesco’s agriculture ETF (DBA).
