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Equity investors have a mounting list of worries. Don’t be fooled by falling oil prices; inflation has proved stubbornly sticky. Healthcare and shelter costs are rising, and core inflation (excluding food and energy) remains high.
It appears the Federal Reserve will have no choice but to continue raising interest rates, making a recession increasingly likely. And that’s only the short term; longer-term concerns abound. Population growth has moderated and the U.S. is aging rapidly, suggesting that labor shortages could put pressure on growth and inflation. Structural factors that have restrained inflation, such as globalization, are weakening. Rising protectionism, an antipathy to immigration and the balkanization of supply chains will only exacerbate trends toward stagflation. The Goldilocks economy could easily morph into a 1970s-style combination of persistent inflation and unsatisfactory growth.
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