Reuters: Wall Street fears 1970s-style stagflation comeback, Europe at risk

According to Reuters, the recent surge in oil prices, the Federal Reserve's stance, and the situation of Russia's invasion of Ukraine have made Wall Street worried about a possible reprise of the stagflation of the 1970s. As a result, many Wall Street investors believe that stagflation is not far off, and have therefore readjusted their investment portfolios to cope with expected high inflation and weak economic growth.

Reuters analysis indicates that Brent crude oil prices surged by about 80% last year to reach $116 per barrel, and the rising energy costs will continue to drive up consumer prices, putting pressure on global economic growth. Furthermore, market volatility triggered by geopolitical conflicts has left investors uncertain about whether the Federal Reserve will curb inflation with a tightening monetary policy.

According to a survey by BoFA Global Research, 30% of fund managers believe there will be stagflation in the next 12 months, up from 22% last month. Anders Persson, Global Head of Fixed Income Investments at Nuveen, stated, "Our base case assumption is still not the stagflation of the 1970s, but we are moving in that direction."

The last bout of stagflation began in the late 1960s, with soaring oil prices, rising unemployment, and loose monetary policy pushing the consumer price index to a high of 13.5% in 1980, prompting the Fed to raise interest rates to nearly 20%. According to stress test models by MSCI Risk Management Solutions, if rising oil prices lead to stagflation, diversified investment portfolios of global stocks, bonds, and real estate could ultimately lose 13%.

Paul Christopher, Head of Global Market Strategy at Wells Fargo Investment Institute, noted that the war in Ukraine will make Europe more dependent on energy imports, potentially causing greater damage from stagflation in Europe and prompting investors to withdraw from European investments.

Christopher also suggested that stagflation in Europe could resemble the U.S. experience in the 1970s, stating, "In Europe, if energy prices are too high, factories will have to shut down."

According to data from the ICI, commodity funds have seen inflows of $7.7 billion since the beginning of this year, with these inflows coinciding with a significant increase in commodity prices, benefiting assets related to commodity-exporting countries like Australia, Indonesia, and Malaysia.

Cliff Corso, Chief Investment Officer at Advisor Asset Management, believes that commodities present a new wave of opportunities not seen in a long time.

This article is reproduced with permission from Horizon News Network.