MarketWatch

Stagflation is ‘a legitimate risk’ that would be painful for U.S. markets

The possibility of stagflation — an economic environment marked by high unemployment, high inflation, and low economic growth, experienced in the U.S. in the 1970s — has moved onto the radar screen of some market analysts. “Stagflation is absolutely the biggest risk for every investor,” said Nancy Davis, founder of Quadratic Capital Management, in an interview. When stocks tumble in times of tumult, bond prices tend to rally as investors pile into them for safety, but a traditional portfolio of 60% stocks and 40% bonds could see a “disastrous outcome” should stagflation show up, Davis warned.

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