If you have been following my weekly/monthly newsletters you will know that both bond and equity markets have been wrestling with rising inflation all year. At the same time, they have been trying to second guess the outlook for global economic growth. On occasion when the market fears a downturn in economic growth, talk of stagflation comes to the fore. Stagflation refers to an economic pattern when inflation is high or increasing despite high unemployment and slow economic growth. However, when the market becomes optimistic about economic growth in the face of rising inflation then talk is of the reflation trade.
I have previously carried out analysis on the funds that tend to outperform in each environment, which is listed below:
Arguably at this precise moment in time, we have veered back towards the reflation trade, but for much of 2021 the consensus over stagflation or reflation has switched back and forth, moving asset prices accordingly, and this will no doubt continue to happen.
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