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Inflation & Prices

Stagflation Trade Dies Quiet Death in Week-After-Week S&P Surge

  • Stocks, bonds in tandem rally, a reversal of 2022’s demise
  • Asset correlation keeps strengthening with inflation in focus

Something has shifted in markets. Fear of stagflation, the return-busting specter of spiraling prices and recession that just sent stocks and bonds to their worst annual drubbing in a generation, has gone missing.

In 2023, traders seem persuaded that rout was an overreaction, particularly in equities, as evidenced by the 7.7% surge that has lifted the S&P 500 in four of the year’s first five weeks. While bonds took a hit alongside stocks Friday, their gains have also been impressive, combining to post the best start of a year for cross-asset returns since 1987.