On March 13, financial news reported (Editor Zhao Hao) that Trump's unpredictable tariff war has dragged the US stock market down for three consecutive weeks. Just as the overall market is in a slump, a trading strategy betting that the "USA economy will fall into stagflation" is gaining popularity.

As of Tuesday (March 11), Goldman Sachs' "Stagflation Basket" (code: GSPUSTAG) has risen nearly 20% this year, becoming the firm's best-performing US Assets long-short investment portfolio, while the benchmark US stock market has fallen by 5.3% during the same period.$S&P 500 Index (.SPX.US)$It has dropped by 5.3%.

It is understood that this "Stagflation Basket" bets on rises in CSI Commodity Equity Index and Medical Care and other defensive industries, while shorting Consumer stocks, Semiconductors, and loss-making Technology stocks.

Faris Mourad, the Vice President of Goldman Sachs’ team responsible for customizing investment baskets, wrote in a client report, "For investors looking to adjust their portfolios and hedge against stagflation risk, we recommend this ‘stagflation’ long-short hedge basket trading strategy."

Yesterday, due to the US CPI being reported to have slowed beyond expectations, both the S&P and Nasdaq rebounded, offering the market a brief respite. However, some investors remain concerned that import tariffs could trigger stagflation in the USA — a combination of slow economic growth and high inflation.

Julian Emanuel, the chief equity and Algo strategist at Evercore ISI, stated, "All of our policy analysis research indicates that the long-term implementation of the currently proposed tariff policy will lead to a significant slowdown in economic growth and a substantial increase in inflation."

The firm believes that when the annual GDP growth rate falls below 1.5% and the inflation rate (core PCE) exceeds 3%, it indicates that the USA is entering a state of stagflation. Once this scenario occurs, the firm predicts that the S&P 500 Index will drop to 5200 points by the end of the year, currently around 5600 points.

Recently, the deterioration of market sentiment has prompted several Banks to lower their forecasts for the USA economy. Goldman Sachs' chief economist Jan Hatzius on Monday lowered this year's GDP growth forecast from 2.4% to 1.7% and raised inflation expectations, becoming increasingly pessimistic about the outlook for US Stocks.

The performance guidance of blue-chip companies in the USA also shows signs of weakness, with the two major Airlines lowering their earnings expectations, while what is seen as a "barometer of US Consumer strength"$Walmart (WMT.US)$has also issued a warning, expecting future business to face pressure.

So, in a stagflation environment, who will be the winners? Generally speaking, companies that can maintain stable cash flow during economic downturns perform better, and defensive Sectors such as Medical Care, Energy, and Consumer staples have become the leaders in the S&P 500 Index.

David Lin, founder and CEO of Linvest21, also suggests that investors pay attention to companies with stable consumer demand that can pass costs onto consumers. He believes that utility and Medical Care Stocks are likely to perform well due to the relatively favorable regulatory environment.

According to Lin's portfolio model, Consumer giants$Johnson & Johnson (JNJ.US)$and$Procter & Gamble (PG.US)$can potentially perform excellently in a stagflation environment due to their diversified product offerings.

In the NENGYUANHANGYE, Lin believes$NextEra Energy (NEE.US)$is in a favorable position because this company can fully capitalize on the growing demand for Wind Power. He expects that even in the face of an economic slowdown or rising inflation, the demand in this Industry will remain resilient.

Editor/ping