Source: Golden Ten Data

Mention of the term “stagflation” in headlines last week soared to its highest level in two years, which could begin to affect Wall Street sentiment, according to Bank of America.

Stagflation refers to a situation where economic growth is sluggish and inflation remains high, as shown by recent data for the first quarter.

Although analysts told Business Insider that it is still too early to officially announce that the US economy is in stagnation, Bank of America still warns that a series of shocking headlines can easily change market narratives.

The bank said utilities and energy are the best areas to invest in for those looking to take full advantage of the current situation and protect their portfolios.

Bank of America said in a Wednesday report: “These industries have performed best during the period of stagflation in history, and they are also the best performers in an environment where concerns about stagflation spread in 2022.”

Stagflation will limit the ability of the Federal Reserve to cut interest rates, as interest rate cuts may further trigger high inflation. Under these circumstances, the Federal Reserve usually has no choice but to tighten monetary policy. “In an environment of high interest rates, real estate is the worst performing industry, followed by the technology industry. ” Bank of America added.

The performance of these sectors heightened concerns about stagflation, with the real estate and tech sectors falling 8.6% and 5.5%, respectively. In contrast, the utilities sector rose 1.6%, while the energy sector fell only 0.9%.

However, Bank of America believes that stagflation is not inevitable, and did not see any signs of stagflation in last month's difficult GDP and personal consumption expenditure data. The bank said that although economic growth appears to have slowed sharply in the face of rising inflation, consumer spending remains strong.

edit/lambor