Stock Market Crashing... Are we heading towards Stagflation?

Stagflation is an economic phenomenon characterized by high inflation and low economic growth. It can be caused by a variety of factors, including a rise in the price of oil, a decrease in aggregate demand, or an increase in government spending. Stagflation can be difficult to manage and may lead to higher unemployment and lower living standards.

The term "stagflation" was first coined by British politician Iain Macleod in 1965, and it has been used to describe periods of high inflation and low economic growth in a  variety of countries. Stagflation is often considered to be a very difficult economic phenomenon to manage.

There are a variety of policies that our policymakers may use to try to mitigate the effects of stagflation, including monetary policy, fiscal policy, and supply-side policies. Monetary policy is the use of interest rates and other tools to influence the economy. Fiscal policy is the use of government spending and taxation to influence the economy. Supply-side policies are measures to increase the supply of goods and services in the economy.

Are we heading towards Stagflation?

In recent years, feds have flooded the market by printing money and keeping interest rates low.  However, this may have caused too much inflation combined with international trade issues that have reduced the supply of various products.  We are currently looking at inflation of 8 percent or more in various categories (according to CPI numbers of May 2022).   You can read the full report here.

Is this a surprise? Not really, economists have been crying about this for some time.  They told us that quantitative easing could eventually lead to inflation if the money injected into the economy is not carefully managed.  And here we are.

The federal government has now stopped quantitative easing and increased interest rates to combat inflation.  However, this may lead us to higher unemployment & low economic growth.

Will the inflation come down?  That is the million-dollar question.

Supply chains are still broken.  

Wat between Ukraine & Russia is showing no signs of compromise.  How long will it take for supply chains to be rebuilt after the war ends?

Will China follow Russia and invade Taiwan?

What about trade routes & Chinese exports?

Tarif & Trade deficit issues.

Too many variables in play here.  It is unlikely that inflation will come down in near future.

How to invest during stagflation?

During stagflation, investors may find it difficult to make money in the stock market. Many companies will be struggling to maintain their profits, and the overall economy will be growing slowly. However, there are a few sectors that tend to do well during stagflationary periods.

One sector that generally does well during stagflation in the healthcare sector. This is because people will continue to need medical care even when the economy is struggling. Healthcare companies are also often less affected by changes in interest rates than other companies.

Another sector that does well during stagflation is the utility sector. This is because people still need to heat their homes and have electricity even when the economy is struggling. Utility companies are also often less affected by changes in interest rates than other companies.

If you are looking to invest during a stagflationary period, it is important to choose companies that are likely to weather the economic conditions. Healthcare and utility companies are generally good choices, as they are essential services that people will continue to need even when the economy is struggling.