‘Nowhere to hide?’ What’s next as stocks slump toward bear market amid predictions of stagflation

The primary U.S. stock market benchmark is still close to entering a bear market, as investors worry about the Federal Reserve’s capacity to control inflation without sinking the economy, fueling fears of stagflation – a toxic combination of poor economic growth and persistent inflation.

It’s not only affecting stock prices.

Stagflation is “an awful environment” for investors, according to Nancy Davis, founder of Quadratic Capital Management, because stocks and bonds lose value at the same time, wreaking havoc on standard portfolios split 60 percent between stocks and 40 percent bonds.

In 2022, this was already the case. Bond markets have lost momentum as Treasury yields, which move in the opposite direction of prices, have risen in response to rising inflation and predictions of aggressive monetary tightening by the Fed.

Stocks have been on a downward trend since the S& P 500 index set a new high on Jan. 3 this year, putting the large-capitalization benchmark on the edge of formally entering the bear market territory.

Through Friday, the iShares Core U.S. Aggregate Bond ETF AGG, -0.43% was down more than 10% year to date.

It is based on the Bloomberg U.S. Aggregate Bond Index, which includes Treasury bonds, corporate bonds, municipal bonds, mortgage-backed securities, and asset-backed securities. Over the same period, the S&amp ;P 500 SPX, +2.39% is down 15.6%.

In a note published this week, analysts at Montreal-based PGM Global stated that the situation leaves “practically nowhere to hide.”

They said, “not only are long-term Treasuries and Investment Grade credit moving nearly one-for-one, but selloffs in long-term Treasuries are also coinciding more frequently with down days in the S&P 500.”

On Wednesday, investors seeking solace were disappointed.

The eagerly awaited April consumer price index showed that annual inflation slowed to 8.3% from a more than four-decade high of 8.5% in March, but economists had expected a more pronounced slowing, and the core reading, which excludes volatile food and energy prices, showed an unexpected monthly increase.

 

4 Responses

  1. If you voters keep voting in Democrats and destroying our economy you will continue to destroy your financial future and your freedoms!😠👎

  2. Hay Nancy ! Yea Joe, ! what’s up ? Not the stock market he- haw , now serious though. Here’s the DEAL :Looks like we have got the job done so to say ! All our fellow Dems and our Republicans under covers. Can now have a GREAT weekend in DELAWARE . Remember COMRADS our GOAL ! GREAT RESET !!! sorry just them not us………. It’ a Great world….or is the saying it’s a wonderful life ? Jimmy Dickenson, Stuuuuert or some stuuudering nobody. My other favorite saying is THE HAVE and HAVE NOT”S. I have some more babblings . Hale ?? that German guy ? how does” HALE JOE ” sound ???

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