Stocks logged a third-straight losing session on Thursday as investors continue to deal with a mixed bag of economic data. That followed Wednesday’s session and extremely weak industrial production that sparked fears the economy is losing steam, as the Fed pushes on with interest rate hikes. Or as CNBC commentator Ron Insana put it:
Our call of the day from Jefferies tackles that idea. “Disinflation is a key assumption for our road map for 2023,” says Desh Peramunetilleke, global head of microstrategy, and analyst Mahesh Kedia, in a note to clients on Thursday. “The 1980s disinflation cycle brought about by higher rates and easingsupply side pressures provide a good template for the current cycle. Broadly, quality growth stocks/sectors did better than value, and small-caps underperformed,” said the pair. Read: JPMorgan CEO Jamie Dimon sees ‘a lot of underlying inflation,’ rates at 6% in a recession What did well from April 1980 to February 1983 was the consumer, with business services, staples and consumer services outperforming, while commodities and industrials did less well. Buying quality and avoiding value was also a smart move, they add. As for here and now, the pair say while extreme inflation is usually not great for stocks, moderate inflation can be a better setup. They note a positive correlation over the past 20 years, between monthly S&P 500 returns and the percentage point change in U.S. 10-year inflation expectations.
Jefferies, FactSet, multpl.com