Macro: Sandcastle economics
Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.
Head of Fixed Income Strategy
Summary: Identifying risks and opportunities is crucial amid a fast-changing market. We believe that it has arrived the time to weigh in on the threat from stagflation. In this analysis, we look at what that means for one's portfolio and which assets can help investors navigate these markets.
Did you know that people that identify safety vests and exits are more likely to survive adverse situations?
In this analysis, we’ll try to explain what does stagflation mean for your investments. Even if this scenario does not materialize, we believe it is necessary for investors to consider it and to identify safety vests and exits well ahead of time. Therefore we determine what assets are detrimental to your portfolio and which can be helpful in such a context.
Stagflation might be the real challenge ahead for markets as elements point to the fact that it may take over the reflation trade.
While the reflation trade sees a strong pick-up in economic growth and inflationary pressures, stagflation sees higher inflation without much real growth. So far, the economy seemed to strengthen together with inflationary data. However, the nonfarm payroll miss last week and strong CPI readings today suggest that inflation may pick up before the problems hindering growth are resolved.
This changes investors' approach towards their investments completely because it means that economic growth might not be strong enough to sustain record high asset prices. Thus valuations will need to correct according to the real economy’s activity. Otherwise, nominal growth (real growth plus inflation) may continue to rise through inflation, eroding value from asset prices.
Assets that will strive amid stagflation:
What to avoid at all cost in the bond market:
To simplify your search, below are some ETFand bonds, which can be helpful to consider in this environment.