Daily Price Movement / General Discussion, page-32648

STAGFLATION'S GRIM TRACK RECORD (1155 GMT)

As stagflation worries take centre stage, Goldman Sachs strategists have reviewed equity performance in environments of high inflation and slowing growth for the past 60 years.

"U.S. equity investors have had little experience with stagflation in recent decades," the team led by David Kostin wrote in the investment bank's U.S. Weekly Kickstart note.

Since 1960, 41 quarters have been characterized by weak GDP growth and high inflation, mostly between the late 1960s and early 1980s, the strategists found.

The S&P 500 quarterly return fell 2.1% in those periods versus median real total return of 2.5% per quarter in the last 6 decades.

The equity performance in stagflationary environments was worse than the median returns in environments characterized solely by either weak economic growth or high inflation, the Goldman Sachs team also said.

Consumer services industries like restaurants and entertainment have outperformed goods industries including apparel and retail by over 100 bps per quarter during stagflationary periods compared with roughly equivalent performance in all periods.

Stagflation also weighed on the growth of household wealth, with these period being associated with declining household allocations to equities, helping explain the weakness in equity valuation multiples.

At the sector level, energy and health care have typically generated the strongest returns during periods of stagflation, while industrials and tech have generally lagged most, according to the GS strategists.