Are U.S. Stagflation Fears Overblown?
“Worries that the U.S. economy is heading into stagflation are overblown, several high-profile bond market investors said Monday at the 2021 Milken Global Conference program.
Stagflation - when stagnant economic activity is combined with high inflation - is "extremely unlikely," PIMCO Chief Executive Emmanuel Roman said in a panel discussion at the conference, held in Beverly Hills, California.
Other participants in the panel discussion - including PGIM CEO David Hunt; Invesco CEO Martin Flanagan; Elizabeth Burton, chief investment officer for the Employees’ Retirement System of Hawaii; and Scott Minerd, Guggenheim Partners global chief investment officer - largely agreed that the threat of stagflation was remote.
With energy prices on the rise even as the economy remains constrained by supply-chain gridlock, an increasing number of investors have started to fret about the specter of stagflation in recent months.
In the past, a stagflationary environment has tended to weigh on stock performance, analysts at Goldman Sachs said in a report published earlier this month.
The S&P 500's median real total return fell to negative 2.1% per quarter over stagflationary periods in the last 60 years, compared with an overall median real total return of 2.5% per quarter over that time period, the report said.
Invesco's Flanagan and the panel's other speakers, however, believe that comparatively strong U.S. growth makes the prospect of stagflation unlikely.
Guggenheim's Minerd, who views the recent rise in inflation as temporary, said the current interest rate environment supports stock valuations at current levels.
The S&P 500 Index, is trading at a forward price-to-earnings ratio of about 20, close to the two-decade high of 23 touched in early September.
"Are stocks going to correct again? Yes, for sure," Minerd said. "But do I think stocks are going to correct now? No. We might very well be in a bubble, but there are a lot of opportunities here for a long-term investor."
With Treasuries yielding very little, investors' reach for better returns is supporting equity markets, PGIM's Hunt said.
"It's never been more punitive to hold cash," he said.