Pedestrians in front of the Bank of America Tower in New York. Photographer: Michael Nagle/Bloomberg.
As “stagflation” makes its way back into the lexicon of the Wall Street crowd, strategists at Bank of America Corp. (BofA) have a blueprint to navigate the bleak economic landscape.
Ultimately, it’s fairly straightforward, according to Savita Subramanian, BofA’s head of U.S. equity and quantitative strategy: Stick with companies with solid fundamentals capable of churning out a steady stream of profits, as well as those that pay cash dividends. They’re the safest bets, she said in a note dated last Friday, if stagflation—a combination of slowing economic growth and accelerating inflation—does take hold.
Recommended For You
Stagflation concerns have mounted in recent weeks, helping to spark a roughly 8 percent slump from an all-time high in the S&P 500 Index, as President Donald Trump ratcheted up his tariff plans. Policymakers at the Federal Reserve added to that chatter last week when they lowered their growth outlook and raised their inflation forecast. It’s been decades since the United States actually sank into stagflation—and Subramanian called it just a “tail risk” for now. But the specter of even the possibility of that sort of downturn sent stocks tumbling back in 2022.
“In recent weeks, some of the economic data has weakened and inflation has stayed sticky, so that’s caused questioning of whether we could be in a stagflationary environment,” said Jill Carey Hall, a U.S. equity strategist at BofA. In that backdrop, what works “are higher-quality stocks—stocks that have stable earnings and are returning cash to shareholders.”
Investors appear to already be girding their portfolios for the worst. A Goldman Sachs Group Inc. basket of long-short pair trades in stocks that outperform during periods of stagflation has surged this year, climbing roughly 16 percent through Friday’s close, while the S&P 500 has declined 3.6 percent.
BofA backs using a factor-investing approach—a strategy based on targeting specific characteristics of a security like its price or volatility. In previous episodes of stagflation, quality was among the groups that outperformed the broader market, while value, growth, and risk equities faltered, in BofA’s analysis of data going back to 1957. Still, the bank emphasized that although it’s worth exploring, given client worries around stagflation, such economic periods remain rare, occurring less than 10 percent of the time. The last such era took place in the 1970s.
To Julian Emanuel, chief equity and quantitative strategist at Evercore ISI, the market has already traded the stagflation theme, and the pessimism that’s plagued U.S. stocks is setting the stage for a recovery into the rest of the year. He expects tariff worries to ultimately be resolved as negotiations continue between the Trump administration and other nations, paving the way to a rebound. “We’re in the process of reaching peak uncertainty with the selloff given sentiment and positioning,” he said. “The two-steps-back portion we’ve witnessed is resolving itself, and we think it’s likely you’ll get three steps forward toward higher prices.”
At JPMorgan Chase & Co., the trading desk warned that the Fed’s forecast was pointing in the direction of stagflation. The desk reiterated its tactically bearish position and highlighted that a subsequent move lower in bond yields following the central bank’s Wednesday meeting was a reaction to “stagflation, which is negative for stocks.”
The team, led by global head of U.S. market intelligence Andrew Tyler, said more clarity is needed around market consensus before exploring havens if investors adopt the stagflation narrative.
————————————————————
© 2025 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
