Fears of stagflation are already wreaking havoc on stock markets. The action of the central banks that have begun to raise interest rates, such as the Federal Reserve or the Bank of England, is late, according to many analysts. And some, like the European Central Bank, have not even started down that path yet. Meanwhile, some stock markets that had recovered after the stock market debacle due to the pandemic two years ago are now at the crossroads again due to the invasion of Ukraine by Russia and everything that that implies at an economic and geopolitical level. Given all this, Goldman Sachs is not exactly optimistic about the chances of achieving decent returns for investors unwilling to take substantial risk.
According to a report published this week, Goldman Sachs experts predict a “lost decade” for the investor profile that maintains a portfolio made up of 60% variable income and 40% fixed income, a model usually considered balanced as it covers the risk posed by the stock market with the safest bonds. But with high inflation – 7.6% in Spain, 6.2% in the EU and 7.5% in the US, with prospects of going higher – the real yield on bonds is in negative territory, devaluing the portfolio .
In the note issued on Friday, Christian Mueller-Glissmann, Cecilia Mariotti and Andrea Ferrario, Goldman strategists, point out that so far this year this type of portfolio in both Europe and the US more than 10% are left in real terms.
It should be remembered that, of the large world indices, the Dow Jones is the one that falls the least in this 2022, with a decline of 4.36%, while the EuroStoxx 50 leaves more than 9% and Chinese benchmark indices suffer double-digit declines. In the same vein, in fixed income, the 10-year US bond suffered its worst year-on-year performance in 9 years, placing its yield at 2.1%.
According to these analysts, real yields adjusted for inflation remain close to their lowest levels in decades, showing the pessimism about the growth that is forecast for the coming years. In addition, the yield curve of US government bonds is close to inverting, which usually anticipates a recession in less than two years.
From Goldman they consider that the traditional 60/40 portfolio has been favored in recent years by a low inflation and minuscule interest rateswhich has “boosted valuations and earnings growth, despite relatively weak economic growth,” which has translated into real returns “that were about 7-8% a year in the last cycle, in compared to the 5% long-term average,” they note.
To avoid the “lost decade”, analysts recommend betting on “real assets”, such as raw materials, real estate and infrastructure, and increasing diversification abroad. They also advise getting hold of high dividend stocks and value companies.
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Warren Buffett recommends investing in this type of company in times of inflation
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