Hi All,
I was hoping y'all could share some wisdom on asset classes and within equities, specific industries that would feel either a positive or negative impact (compared to the market as a whole) in a theoretical situation where we have low interest rates coupled with stagflation. My assumption is that interest rates would have to rise to combat the inflation, especially if they come from a low base. Is that a valid assumption to make?
To be clear, this is a question to help my general understanding. I have no opinion on the economy or where it's going to be in a year from now. I'm jut at a loss of what would be specifically hurt by such a scenario and what would benefit and I'd like to expand my general understanding in this area.
-
From what I've read so far, commodities do well during stagflation. If we take oil as example, most E&Ps are quite levered so an increase in interest rates would harm them. Likewise, a decrease of oil consumption would also pressure prices. So I don't understand why commodities would fundamentally perform well during stagflation.
-
Other real assets like real estate make more sense to me. The interest rate is often fixed, and the asset is likely going to rise with inflation; rents can often be adjusted based on inflation as well to keep real cashflows consistent.
-
Investment grade bonds would see an influx of funds but at the same time if interest rates increase lose some value. So probably short-dated bonds perform very well and long-term bonds break-even?
-
High yield bonds would probably see a lot of pain due to the risk-off sentiment at the time.
-
In equities, consumer staples would likely do very well and utilities break even (can pass rise in inflation to customers but hurt by rise in interest; benefit from flight to safety), with all other sectors doing badly, especially growth (tech, etc.) and consumer discretionary?
Looking forward to your thoughts on this topic. Thank you.
Submitted May 06, 2017 at 10:49AM by Cujolol http://ift.tt/2qaLJpB
