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On the first stagflation risk of high inflation, Buckland said the Energy, and Metals & Mining sectors provide good inflation hedges. He notes that more commodity-exposed equity markets, such as Australia and the U.K., are proving resilient.
On the second stagflation risk of higher rates, the strategist said growth stocks are especially sensitive to higher real rates. “An increase in the U.S. 10y TIPS yield (currently -0.1%) to +1.0% would imply the MSCI US Growth index (NASDAQ proxy) derating from the current 28x to 18x,” he commented.
On the third stagflation risk of weaker growth, he said defensive sectors like Utilities, Consumer Staples, Health Care, Telecoms should perform better on EPS revisions. Also, U.S. indices/currencies are more defensive than foreign markets.
