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KAPITALKOMPASS #62: Stagflation and the Oil Shock
- 4 days ago
- 3 min read
Dear Clients, Dear Friends of Our Firm,
The past few weeks have felt like a journey through time that we would all have gladly done without. Anyone who had hoped that the 1970s would return only in the form of retro fashion was proven wrong by the oil market. Since the outbreak of the Iran conflict and the temporary closure of the Strait of Hormuz, the markets have been ruled not by fundamental analysis, but by pure geopolitics.
Although there is currently a brief respite—a two-week ceasefire was agreed upon through Pakistan’s mediation—nervousness remains at a level last seen in the spring of 2025. The VIX, Wall Street’s “fear gauge,” continues to trade above the critical 31 mark.
The specter of stagflation is becoming a reality
What concerns us more at the moment than short-term price fluctuations is the overall economic picture. We are seeing classic stagflation:
Weak growth: Purchasing Managers’ Indexes now point to annualized GDP growth of only around 1%.
High inflation: At the same time, the rate of consumer price inflation is accelerating to about 4%.
Trend reversal: The trend in economic data is approaching levels that we typically only see during genuine crisis periods.
The interest rate turnaround that never happened
The situation is precarious for central banks. We call it the “central bankers’ dilemma”: If they lower interest rates to support the economy, they fuel inflation. If they raise interest rates, they will ultimately stifle growth that is already weak.
This has tangible consequences for your portfolio:
Interest rate cuts by the Fed and the ECB are off the table for now.
The market is already pricing in a 50% probability of an interest rate hike by December.
The yield on 10-year U.S. Treasury bonds has already climbed to 4.48%.
What does this mean for your strategy?
In times of extreme uncertainty—as illustrated by a trading range of over 3,900 points in the Dow futures—prudence is more important than ever. The watchword of the moment is “Cash is King.” Capital is currently being withdrawn en masse from risky investments and moved into safe havens.
Our current recommendations for your portfolio:
Maintain liquidity: Stay flexible so you can capitalize on opportunities during market excesses.
Quality over momentum: Focus on companies with strong balance sheets and pricing power.
Commodities as a hedge: The oil market remains the key risk; an extreme scenario of $135 per barrel cannot be ruled out.
Preserving real value: We recommend adding inflation-indexed bonds (TIPS) to your portfolio to secure real returns.
Geopolitics is currently setting the pace, and corporate earnings have taken a back seat for now. We continue to monitor the situation for you around the clock.
Conclusion
In summary, geopolitics currently holds the reins firmly and is increasingly pushing fundamental corporate data into the background. The looming threat of stagflation calls for a defensive repositioning of your portfolio. We therefore advise you to increase liquidity and place greater emphasis on quality stocks as well as the energy and commodities sectors. Inflation-indexed bonds (TIPS) are also a sensible component for securing real returns in this volatile environment.
This is a time for vigilance, in which consistent risk management is more crucial than ever to long-term success. We remain on top of market developments for you and will guide you safely through this challenging phase.
With best regards and happy investing,
Your service team
Disclaimer
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Source:
Torsten Leißner