Markets are increasingly factoring in the potential for stagflation, a combination of slow economic growth and rising prices. Citi analysts suggest the market is beginning to reflect these concerns despite recent positive earnings reports and a relatively stable geopolitical situation in the Strait of Hormuz.
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Despite a recent month of strong earnings – with the fewest earnings misses in 25 years, excluding the pandemic recovery – and relative calm in the Strait of Hormuz, with limited disruptions to shipping traffic, markets are beginning to price in the possibility of stagflation.
According to a quantitative analysis by Citi, the current market conditions are exhibiting characteristics reminiscent of stagflation, a challenging economic scenario combining slow growth and rising prices.