4 months ago
The economy could be heading toward 1970s-style stagflation. What it means for the stock market.
The U.S. economy could be barreling toward 1970s-style stagflation amid a cooling economy and sticky inflation — and it could end up sparking a double-digit plunge in stocks, according to Sevens Report Research.
“Stagflation doesn’t have to be as bad as it was in the 1970s, but for a stock market that’s trading above 21 times earnings, the truth is that even a small bout of stagflation would result in a 10%-20% decline in stocks,” said Tom Essaye, founder of Sevens Report Research, in a Monday note.
Stagflation refers to slowing economic growth combined with high inflation, which scarred the U.S. economy for much of the 1970s. Stock-market investors have grown concerned that the economy could sink into a similar dilemma since the March consumer-price index report came in hotter than expected.
Some economists have downplayed the idea of stagflation. Chief among them is Federal Reserve Chair Jerome Powell, who said during a press conference following the central bank’s April policy meeting that there was no sign of stagflation in the economy, even as inflation remained stubbornly high and some signs of slowing growth started to emerge.
