Equity investors have a growing list of concerns. Don’t be fooled by falling oil prices: inflation proved stubbornly sticky. Costs for healthcare and housing are on the rise and core inflation (excluding food and energy) remains high.
It seems that the Federal Reserve has no choice but to keep raising interest rates, making a recession more and more likely. And this is only in the short term; longer-term concerns abound as well. Population growth has moderated and the United States is aging rapidly, suggesting that labor shortages could put pressure on growth and inflation. Structural factors that have held back inflation, such as globalization, are weakening. The increase of the protectionism, the aversion to immigration and balkanization of supply chains will only exacerbate stagflation trends. The economy could easily turn into a 1970s-style combination of persistent inflation and unsatisfactory growth.
None of these outcomes are predestined, and macroeconomists have failed to predict some of the most important events of the past century. However, it is worth preparing for the possibility of disastrous economic results and asking whether the …;.