Don't Buy the "Stagflation" Scare Just Yet

Apr 30
2 min read

Don't Buy the "Stagflation" Scare Just Yet

There’s been a lot of chatter lately—sparked by folks like Ray Dalio—that we’re heading into stagflation. (That’s the nasty mix of a stalling economy plus high prices). This worry picked up steam after some weak economic data came out of Europe.

But looking at the U.S. data, we’re seeing a very different story. Here is the breakdown of why we’re feeling optimistic and how we’re moving our money.

1. The Numbers Don't Lie: Earnings are Booming

While some worry about a slowdown, the actual results from S&P 500 companies tell us the opposite.

Strong Growth: Earnings per share (EPS) growth has actually jumped to +17.27%, up from about 12% just three months ago.
AI Efficiency: Even though oil prices are up, companies are using AI-driven efficiency to keep their profit margins healthy.
The Verdict: This isn't "stagflation" (low growth); it's a "Rocket Ship" environment (high growth).

2. Why the Fed is Staying Put

We agree with the bears on one thing: The Federal Reserve shouldn't cut interest rates right now. However, our reason is different. We don't think they should hold rates because the economy is "fragile." They should hold them because the economy is firm and inflation is still a bit too stubborn. You only cut rates when things are breaking, and right now, things are humming along.

3. Our Portfolio Move: Trimming the Winners

Our strategy of betting big on Technology and avoiding Energy has paid off massively. Since March 30th, Tech has beaten Energy by a staggering amount.

What we’re doing now:

Taking Profits: After such a huge run, we are looking at reducing our "overweight" (extra) position in Tech.
Balancing Out: We are considering moving away from our "underweight" (lower than average) position in Energy.

The Bottom Line

Our rule is simple: We stay invested in stocks as long as earnings expectations are going up. Right now, that trend is still our friend. We aren't changing our bullish stance until the data tells us the growth engine is actually stalling.