Looking at what Hartnett refers to as the three stages of stagflation in the 1970s, the widely followed strategist believes we are in stage one, and he explains how to invest in this environment.
The first stage
According to Hartnett, stagflation first appeared in 1965 with no warning or forewarning. This period coincided with inflation and interest rates breaking out of multiyear ranges to the upside, while the stock market also reached new highs.
Inflation has undoubtedly risen as the economy has recovered from the pandemic. The Labor Department’s consumer price index increased 5.4 percent year on year in July, matching the largest increase since August 2008.
During the episode decades ago, equities outperformed using “a barbell of small cap value and Nifty 50 tech,” according to Hartnett.
Looking at stock performance in different parts of the market from 1965 to 1968, small-cap stocks had the greatest gains, with an annualized total return of more than 30 percent. With a more than 20% rally at the time, value and technology stocks were also winners.
On the other end of the spectrum, telecom stocks were the worst performers, losing about 5% on an annualized basis during the period of stagflation. Investing in government bonds and utility stocks also resulted in a loss at the time.
The second stage
President Richard Nixon removed the United States from the gold standard in 1971, effectively ending the dollar’s convertibility to gold. The move caused the dollar’s value to fall against other currencies, adding to inflationary pressures in the United States.
According to Hartnett, the sharp rise in inflation ended the Nifty Fifty bull market and relaunched volatility and commodity bulls. The Nifty Fifty is a group of 50 large-cap stocks on the New York Stock Exchange that were popular with investors in the 1960s and 1970s.
Small caps, which had led the market in the previous stage, became the biggest losers during this period of stagflation. Commodities were the winners of the era, with an annualized gain of nearly 15% from 1969 to 1973.
Hartnett predicts that the next phase of stagflation will begin in 2022.
The third stage
According to Hartnett, the third and final phase of stagflation began in 1974 and ended in 1981.
Because of persistent inflation, real assets outperformed nearly all asset classes at the time, according to the strategist. Consumer and technology stocks were the worst performers during the period.
Inflation hedges have also been used with tangible assets such as real estate and commodities.
Aspen Aerogels stock
Electric vehicles, including the Chevy Bolt and Tesla models, have experienced battery fires while parked, sometimes in garages. Because of this, a potential solution to the problem could result in widespread adoption among automakers.
“Battery fires are no laughing matter: the Chevy Bolt recall will cost $1.8 billion (and that’s just for one, relatively low-volume model),” according to the Piper Sandler note.
Aspen has developed a thin gel product with a width of about 3 millimeters that battery manufacturers can use in crevices within a battery. According to Piper Sandler, the PyroThin product will eventually become Aspen’s top revenue generator and could be found in 25% of EV batteries.
“Battery markets are 2x larger than ASPN’s core business, and we believe Aspen has a shot at market dominance,”
Aspen, which has a market capitalization of approximately $1.4 billion, has seen its stock rise more than 150 percent year to date.
Analyst Vikram Bagri initiated coverage of the solar stock with a buy rating on Thursday evening, saying that the company should remain one of the largest players in the US solar market.
According to Needham, the company’s push into home batteries could make it a winner in that part of the residential clean-energy story as well.
“Sunrun’s newly launched Brightbox batteries are the most immediate catalyst for growth and the company’s fastest growing segment. As large storms and power outages become more common, households are increasingly installing measures that allow them to operate off the grid, according to the note.
Sunrun, like many other solar stocks, has struggled in 2021 after a year of rapid growth. Shares are down more than 35% year to date and 15% in the last two months.
6 best 5G stocks
5G refers to the fifth generation of high-speed mobile internet, which aims to provide faster data speeds and more bandwidth in order to handle increasing amounts of web traffic. New technologies such as self-driving cars are supported by the rapid development and global deployment of 5G networks, but they are still in their infancy.
Credit Suisse noted in an Aug. 31 note that smartphone market growth slowed in the second quarter due to lower sales in China as well as the impact of the Covid-19 pandemic. The bank reduced its forecast for the current quarter from 353 million to 338 million smartphone units, but still expects 7.6 percent year-on-year growth.
Credit Suisse expects the number of 5G smartphone devices to increase from 255 million in 2020 to 551 million this year. As technology becomes more widely available and affordable, that figure is expected to rise to 900 million by 2023.
Semiconductor firms “are the best way to play the 5G theme,” . He explained that this is likely due to the fact that the majority of the additional spending on 5G is going to semiconductor firms, and the current chip shortage allows them to charge higher prices.
The investment bank highlighted 15 Asian stocks in its Aug. 31 note that could benefit from a transition to 5G in the smartphone market, with projected average earnings growth of 74% this year. The following are the bank’s top picks:
Taiwan Semiconductor Manufacturing Company: According to Credit Suisse, the smartphone business accounts for 40 to 50 percent of chip sales for the world’s largest semiconductor foundry and is expected to grow further. The bank raised TSMC’s price target from 675 New Taiwan dollars ($24.46) to 700 New Taiwan dollars, implying a 13% increase from Wednesday’s close.
ASE: Taiwanese semiconductor manufacturing services provider ASE is expected to grow rapidly in the second half of 2021. With a price target of 142 New Taiwan dollars, Credit Suisse sees 18.8 percent upside.
According to Credit Suisse, Mediatek is penetrating higher-value smartphone segments and narrowing the phone competitiveness gap to Qualcomm from 90 percent to 100 percent to 70 percent.
VPEC: When compared to some of its competitors, the Taiwan-based semiconductor technology provider has a “more balanced customer base.” Credit Suisse believes that 5G proliferation will benefit it in the short term, and that electric vehicles and autonomous driving will benefit it in the long term. The stock has a 31.76 percent upside, according to the firm.
Sunny Optical: The Chinese tech firm, which sells camera modules to device makers, is expected to benefit from the smartphone and automotive industries’ recoveries, as well as from new customers. The bank forecasts a 14.5 percent increase.
Luxshare: According to Credit Suisse, this Apple supplier in China is “a blue-chip for the A-share tech sector due to strong execution, best visibility on growth, and plenty of new opportunities.” Luxshare, according to the bank, will be the primary beneficiary of Apple’s “ongoing wireless strategy and localising supply chain in China.” The firm’s price target is 50.60 yuan ($7.84), implying a 40.16 percent increase.
Nigam said that Credit Suisse is still “very bullish” on 5G from a smartphone standpoint — the expansion of 5G services in mobile devices is the initial application of the technology, but its full potential will be realized only in the long term.
“5G is more of a 10-year story,” he said, adding, “As we go three years, five years, and ten years into this technology, we will see devices and applications that most of us… have never heard of, or can’t even imagine.”