Stagflation Trade Is Roaring Back in S&P 500’s Month of Pain
(Bloomberg) -- The stagflation trade is standing out in a month where almost every stock benchmark and thematic index are weakening.
Most Read from Bloomberg
Record Rainfall in Dubai? Blame Climate Change, Not Cloud Seeding
Red Lobster Considers Bankruptcy to Deal With Leases and Labor Costs
Sectors across the US and Europe that are more exposed to inflation risks, such as consumer products and real estate, have seen their equities under pressure, dragging the S&P 500 down more than 4% so far in April. By contrast, a rally in oil prices have boosted the stocks of energy companies.
While the US economy has been robust over the past few months, GDP forecasts are now signaling lower growth starting in the second half of the year.
A Goldman Sachs Group Inc. proxy index that offers a pair trade of going long on a typical stagflation winner while shorting a loser, has gained almost 5% since the start of April and is set for the biggest monthly gain in a year.
The Goldman index’s top 10 longs include Microsoft Corp., Mastercard Inc. and Caterpillar Inc. Among the shorts are Abercrombie & Fitch Co., Super Micro Computer Inc. and KLA Corp.
With the path toward 2% inflation in the US proving stickier than estimated, prompting investors to dial back rate cut expectations, the attention will also eventually turn to the economic growth outlook’s impact.
Read more: Traders Pile Into Contrarian Bet That Fed Will Front-Run Cuts
--With assistance from Michael Msika.
(Adds outlook for US economic growth in third paragraph)
Most Read from Bloomberg Businessweek
What Really Happens When You Trade In an iPhone at the Apple Store
Aging Copper Mines Are Turning Into Money Pits Despite Demand
Rents Are the Fed’s ‘Biggest Stumbling Block’ in Taming US Inflation
The AI Chatbot That Could Transform Business School Accreditation
©2024 Bloomberg L.P.