Bloomberg - Rallying energy prices are stoking concerns about a challenging stagflation-like environment for markets of elevated price pressures and a slowing economic recovery.
Energy prices have soared as economies emerge from the pandemic. The Northern Hemisphere Winter could exacerbate the trend, ratcheting inflation pressure and hurting both consumers and companies. Creating a backdrop of slower costs and high growth could be challenging for stocks and bonds.
The next big issue facing oil markets could well be energy prices, said Jeffrey Halley, senior market analyst at Oanda Asia Pacific Pte. Bloomberg Television has aired Wednesday on Thursday. I do actually get quite worried as we head into winter that nobody is really hedged against this move as we could see a very sharp spike in energy prices into the last quarter. That may feed to inflation. Stagflation isn t Bank of America - base case, but has often been accompanied by oil shocks in the past. The risk of such shocks has increased recently due to supply chain disruptions, strategists led by Ohsung Kwon and Savita Subramanian wrote in a note Wednesday.
They recommend owning stocks that have seen dividend growth and are more resistant to inflation, as well as small caps, whose prices could be historically elevated against commodity inflation and are trading at a high discount compared with large caps.
Stock-market moves are highlighting bullishness towards energy sector. The S&P 500 energy index is up 5.3% over the past five days, the second-place sector gaining only 0.2%, with best performing financials up just 0.2%. Energy is the top performer this year and was quite an impressive one.
The threat of stagflation is now a possibility, said Simon Doyle, head of fixed income and multi-assets at Schroder Investment Management Australia in an interview on Thursday