Mish’s Daily: Is the US in Disinflation or Stagflation?
Mish’s Daily: Is the US in Disinflation or Stagflation?
Written by Michele ‘Mish’ Schneider
Given how loosely all the title terms are used, let’s start with the definitions of each.
1. Disinflation
- * Definition: A slowdown in the rate of inflation—prices are still rising, but at a slower pace.
- * Impact: Often seen during tightening monetary policy, it’s not negative like deflation and can indicate successful inflation control.
2. Stagflation
- * Definition: A period of high inflation combined with stagnant economic growth and high unemployment.
- * Impact: Particularly difficult to manage because the tools to fight inflation (like raising rates) can worsen unemployment and vice versa.
And here are examples of each “flation” condition
Disinflation or slowing inflation (prices rise but more slowly) and the best example is the 1980s under Volcker
Stagflation or stagnant growth and higher inflation and the best example is the U.S. oil shock of the 1970s.
Where are we now in the US?
One caveat on what seemingly is our current stagflation environment is the impact of AI, especially in tech and certain white-collar roles.
For example, Amazon & Microsoft: Both have announced mass layoffs in 2025, citing their aggressive shift to AI as a primary driver. Amazon CEO Andy Jassy explicitly stated that AI will “eventually replace” some corporate roles, prompting layoffs and hiring freezes.
The Long-Term Transition: Adoption of AI doesn’t eliminate all jobs—some jobs are redefined, new ones created—and rehiring can follow initial cuts.
So, let’s go with stagflation (with the caveat) and offer you actionable investment plans.
The top chart of the Dow shows the trading range DJIA remained in until 1982 post Volcker squashing inflation, followed by the brief recession, and then the ensuing economic growth.
This chart here is of oil in the 1970s. It did not go straight up. Rather, after the Yom Kippur war, oil dropped and then started in the mid-decade, to rise again.
From Monday’s Daily I wrote about the long bonds and what happens if we do not have an oil shock like the one you see we had in the 1970’s.
But what if we do?
The FED is a big player here on what happens next.
Will the Fed cut rates? Stay the course? Raise? Doubtful they raise. Maybe they will cut. But if they stay the course will an oil shock impact monetary policy much?
So far, we are witnessing the potential for higher oil and lower yields, but we shall see.
Meanwhile, back to the 1970s.
Gold was the single best-performing asset class of the 1970s.
Silver and other precious metals also posted huge returns as investors sought inflation hedges.
Defensive sectors like consumer staples, healthcare and utilities outperformed as investors favored companies with pricing power that could maintain profit margins even with high inflation.
Consumer discretionary stocks, as economically sensitive areas like autos and housing were hit by the combination of high inflation and slow growth.
Technology and growth stocks broadly underperformed as soaring inflation, and interest rates compressed their rich valuations.
However, currently, we are seeing tech and growth well outperforming so unless we see a rate hike or inflation growing substantially, these sectors might hold in a range until valuations become too rich.
In 2025, while we can still make a case for disinflation (good for growth), we must carefully watch the similarities to the 1970s.
If this is disinflation, then the prices falling but still high can indicate successful inflation control.
And that’s the rub.
The market is dancing between disinflation and stagflation.
Hence, we will continue to watch:
Oil
Gold to Silver Ratio
Sugar prices
Tech stocks (NVDA)
Dollar
Long bonds
Educational purposes only, not official trading advice.
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Coming Up:
June 26 Live Coaching
June 27th Schwab Network before the bell
July 2 Schwab with Nicole Petallides
July 9 Investor’s Business Daily
July 10 STLForex Nairobi
July 17 CFN webinar
Weekly podcast and appearances on Business First AM
ETF Summary
(Pivotal means short-term bullish above that level and bearish below)
S&P 500 (SPY) 600 support
Russell 2000 (IWM) 215 resistance 205 support
Dow (DIA) 425 near support
Nasdaq (QQQ) While making a new all-time high, 540 now has to hold
Regional banks (KRE) 55 support 60 resistance
Semiconductors (SMH) 283 2024 high and now 270 key support
Transportation (IYT) 68 resistance 66 support
Biotechnology (IBB) 123 support 130 resistance
Retail (XRT) 75.50 support 77 now pivotal resistance
Bitcoin (BTCUSD) 105k support 110 resistance
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