Investors see stagflation – periods of high inflation and low growth – as generally negative. But historic data highlights potential opportunities by sector and region.
On the back of soaring energy prices, fears are rising that the global economy could be heading in a stagflationary direction – one where economic growth is weak and inflation high. On average, this is the worst kind of environment for the stock market. But investors need not panic. Our analysis shows that stocks often perform well when there is stagflation, just not as well as at other times.
Why is stagflation viewed as negative for investors?
Low growth is bad for sales, as businesses and consumers tighten their belts and demand weakens. In a buoyant economy, companies can pass on higher input costs to consumers. When demand is already weak, this is not so easy. Corporate profit margins often take a hit instead, putting additional downward pressure on earnings.
As well as weakening corporate fundamentals, the ability of central banks to stimulate demand by cutting interest rates is also hampered.
Do some parts of the market perform better than others during stagflation?
Sectoral data is only available since 1974, and that reduces the number of stagflation-years we can analyse down to ten. In addition, sectors themselves have changed a lot over time. Communications services used to comprise telecom companies, such as AT&T, whereas today Alphabet (Google) and Meta combined make up nearly three quarters of the sector on a market capitalisation basis (as at February 2026). Conclusions from historical analysis must therefore be interpreted carefully.
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