According to JPMorgan, the US economy is on the verge of stagflation, which is characterised by poor growth and persistently rising inflation, prompting investors to choose equities over bonds.
According to the company, we might be on the verge of a 1970s-style stagflationary scenario.
“Equities were flat from 1967 to 1980, and with yields averaging above 7%, bonds significantly outperformed stocks,” JPMorgan said in a note on Wednesday, emphasising that a yield increase from options such as private credit could be game changers for long-term portfolio performance.
Concerns about stagflation have grown in response to a recent string of hotter-than-expected economic data, contradicting many previous optimistic “goldilocks” projections that predicted cooling prices and solid growth.
JPMorgan also mentioned geopolitical concerns as a reason for probable stagflation, pointing out that 1970s wars in Vietnam and the Middle East caused oil problems, shipping disruptions, and an increase in deficit spending. According to the business, this matches today’s Red Sea upheaval caused by the Israel-Hamas war, Russia’s invasions of Ukraine, and US tensions with China.
JPMorgan warned that an unpredictable geopolitical climate, along with rising interest rates, would likely limit liquidity.
“If one adds volatility that can come from political, geopolitical and regulatory uncertainty, public markets are further disadvantaged vs. private markets that can avoid the limelight of daily volatility,” the authors said.
JPMorgan Chase CEO Jamie Dimon has previously stated that 2024 may mirror the 1970s, claiming that huge budget deficits, alterations in trade patterns, and a commitment to significant government expenditures are “all inflationary.”