Stock Market Insights: '70s style stagflation doubtful

BY DR. RICHARD L. BAKER, AIF® Founder & Senior Wealth Advisor at Steadfast Wealth Management

Khaki pants, a plain light blue shirt, and a navy blue jacket are what I want to wear every day, but my cute wife says I need to mix it up a bit. She buys me patterned dress shirts and weird lined sports coats. I put on an ugly patterned shirt and an ugly jacket only to get the ‘stink eye’ from her. She says, “You can’t have patterns going in different directions.” I go change and wonder why she won’t just buy me tan pants and blue shirts.

Her opinion about patterns going in different directions is sort of like the stagflation I’m hearing tossed around by analysts lately.

Every morning I read analyst and research reports about the market. Some I would consider pessimists, and some are overly optimistic for balance.

One of my favorites is El-Erian, who is the former CEO of Pimco. He is a pessimist but has great research. He said in a recent interview with CNBC that the U.S. economy will have 1970s-style stagflation where inflation stays high, slow economic growth, and high unemployment. If he’s right, it would be bad. I disagree with him. I see the first two trends, but our unemployment is too low not too high.

Things are difficult for the market, inflation is hurting consumers and corporate profits, yields are rising, stocks are volatile and consumer sentiment (opinion) is dropping making for a challenging environment for most investments. But I see some positives, too.

U.S. stock valuations were too high but are back to their 25- year average, and S&P 500 2023 earnings estimates are up 2.5% this year. China is opening back up, supply chains are improving, shipping rates and fertilizer prices have both peaked and turned lower. Things aren’t perfect, but I don’t see a repeat of the 1970s especially since unemployment is so low.

Another analyst I follow is LPL’s Ryan Detrick, who said “The economy is indeed slowing, but it isn’t headed for a recession any time soon in our view. Think about this: This would be the first recession ever to have record earnings and a booming jobs market.”

Some companies such as Target, Walmart and Microsoft had lower earnings than expected. Yet, the earnings per share for the S&P 500 as a whole is still estimated to be up 10% in 2022 even after a weak first half according to LPL Research.

El-Erian went on to say, “It might be time for stock market investors to take some risk off the table.” I might add that I think in times with mixed messages it would be good for investors to evaluate their investment risk level. It’s difficult investing right now but this is when financial/wealth advisors earn their pay.

I think the ‘70s had some pretty dumb patterned clothes I wouldn’t wear either. Have a blessed week! https://www.steadfastwealth. net/richard-baker 2760 East Sunshine St. Springfield, MO 65804