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Investment Strategy Insights

When I was growing up in the 1980s, I remember the all-too-real threat of having my mouth washed out with soap for using a naughty word. Recently, a naughty word has been making the rounds among economists and market observers who claim we’ll all suffer from its bad taste. That word is “stagflation” – a cycle characterized by slow growth, high unemployment, and high inflation. So, is there real cause for concern? Or is this another instance of the media selling fear? Let’s see what the numbers have to say:

April Showers. . .

In April, the stock market saw a downturn, attributed in part to diminishing hopes of interest rate cuts by the Federal Reserve. While The Fed has acknowledged inflation remains stubbornly above their target rate of 2% and short-term interest rates will be maintained, there have also been murmurs of an interest rate hike. The Consumer Price Index (CPI), reported higher-than-expected inflation rates in April, while first-quarter GDP was lower than expected. Both reports seem to be trending in the wrong directions with higher inflation and lower growth fueling stagflation worries.

May Flowers?

May’s start eased inflation concerns with the help of positive earnings reports lifting spirits. Two defensive sectors – utilities and consumer staples– led the rebound after being some of the S&P 500’s worst performers over the past year. In the long term, the stock market is driven by earnings growth. Despite the economic slowdown’s potential impact, the market’s resilience and overall strength remain evident, with the S&P nearly 30% higher than October’s woes.

Valuation Adjustments Incoming

In terms of stocks, analysts are raising their eyebrows over the continued burgeoning valuations of certain growth stocks, particularly in tech. Recently, some hot stocks have cooled, providing opportunities in other, previously-overlooked sectors. It seems as if stock valuations do indeed matter again. While the S&P 500 trades slightly above historical averages in terms of valuation measures, the expectation is for valuations to adjust as earnings continue to grow.

These Things Alone Do Not A Recession Make

Many economists predict that the long-anticipated recession will arrive with a “soft landing”, rather than a deep recession. The recessions of the last 25 years were all caused by large-scale events – tech crash, financial crisis, and COVID. Higher inflation, ballooning deficits, and geopolitical events can make the economy more vulnerable in combination but are likely not enough to cause a recession. The normal state of the economy is growth and expansion; only when an event occurs does it contract. For this reason, we at Secured Retirement do not believe a recession is inevitable.

The Final Word On That “Naughty Word”

Inflation remains stubbornly higher than we’ve experienced over the past couple of decades, so it is important to account for this in your retirement planning. And there is a chance, albeit relatively small, that we will experience a period of that naughty word stagflation. However, the ongoing growth of our population and access to more disposable incomes, coupled with rapid technological advancements continue to contribute to the great American growth story. For now, we remain optimistic about the stock market’s prospects and foresee sustained growth in the long term. 

To learn more about stagflation-proofing your retirement planning, give us a call today at 952-460-3290.

Nathan Zeller Secured Retirement

Nate Zeller

Chief Investment Strategist
Secured Retirement

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Danielle Christensen


Danielle is dedicated to serving clients to achieve their retirement goals. As a Paraplanner, Danielle helps the advisors with the administrative side of preparing and documenting meetings. She is a graduate of the College of St. Benedict, with a degree in Business Administration and began working with Secured Retirement in May of 2023.

Danielle is a lifelong Minnesotan and currently resides in Farmington with her boyfriend and their senior rescue pittie/American Bulldog mix, Tukka.  In her free time, Danielle enjoys attending concerts and traveling. She is also an avid fan of the Minnesota Wild and loves to be at as many games as possible during the season!