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And the winners are… some good news on the Big Tech front. Four of the ‘Magnificent 7’ reported Q1 earnings. Amazon, Alphabet, Meta and Microsoft all reported increased earnings compared to last year, along with reported increases in AI spending. There seems to be no stopping the AI boom despite looming stagflation.
Stagflation is the ultimate economic trap—combining high inflation with stagnant economic growth. This could lead to significant losses for investors. While traditional 60/40 portfolios suffer during these periods, the smart money knows exactly where to pivot.
Historically, stagflation usually follows a spike in oil prices and increasing unemployment. Overall, the markets say that there is a 50% chance of stagflation. The IMF, Ray Dalio and Jamie Dimon of JP Morgan all say we are in stagflation.
What specific asset classes do professionals use to protect and grow their wealth when markets flatline? There are specific things and assets that win in a stagflation environment.
Gold is the obvious winner. During the last stagflation period, gold made 2300%. Recently, gold has broken its record high and proven to be a hedge against extreme volatility over the last year. Agriculture tends to do well in stagflation. Despite rising prices, consumers have to continue to buy food.
Look at the AI world to see who the real winners will be. For example, companies that are using AI to make a profit, like Amazon and Microsoft, are experiencing increased data centre growth.
“It is time for active management. If we have stagflation, it’s time to look at things like structured notes, which make money regardless of whether the market is going up or down. It is essential to have active management and diversification and to make sure that you’re aware and you’re on your toes for a potential stagflationary economy.” – deVere CEO Nigel Green.
Watch Nigel’s take on Stagflation here.
Despite a two-year-long state of war, Israel’s economy is set to grow by 3.8% according to the Bank of Israel, even after a 1.4% downgrade. That’s higher than the G7 countries’ expected growth. The IMF estimates Israel’s economic growth at 3.5% compared to 2.3% for the US and 1.3% for the EU. Next year, Israel is expected to grow by 4.4%.
Why is Israel outperforming the G7 and other economic powerhouses despite a war?
Israel has a much lower debt-to-GDP-ratio than most developed countries, at 69.8% compared to the G7 at 123.7%. Inflation is at 1.9%. A resilient private sector, low inflation, a highly skilled young labour force and sustained growth have helped Israel bounce back.
High-tech goods and service exports have been a main contributing factor to a growing economy, along with developing gas resources and defence exports. Israel recorded its two largest-ever foreign investment deals last year in cybersecurity. Google’s $32 billion purchase of Wiz and Palo Alto Networks $25 billion purchase of CyberArk.
It is also predicted that the energy sector will see growth in the next two years. This is bolstered by low unemployment, strong demand for technology and defence services and goods.
Could the G7 take a lesson from Israel in economic robustness and resilience?
Please note, the above is for educational purposes only and does not constitute advice. You should always contact your adviser for a personal consultation.
* No liability can be accepted for any actions taken or refrained from being taken, as a result of reading the above.