To understand how to position portfolios in this environment, it’s worth looking at what worked—and what didn’t—during the 1970s stagflation, and comparing that to the market responses we see today.
Asset Performance in the 1970s: The Stagflation Playbook
In the 1970s, the U.S. economy experienced:
- Surging inflation (CPI > 10%)
- Supply shocks (especially oil)
- Rising interest rates
- Tariffs and import restrictions as policymakers sought to protect domestic industry
Real (Inflation-Adjusted) Annual Returns:
- Gold: +15%
- Oil: +12%
- Energy Stocks: +8%
- Agricultural Commodities: +6%
- Real Estate: +1%
- Value Stocks: –2%
- Growth Stocks: –7%
- Treasuries: –10%
These were driven by a collapse in confidence, high input costs, and declining real earnings power.
Tariff Effects: Then and Now
1970s:
- Tariffs were used to protect U.S. manufacturing, leading to higher input costs and slower productivity.
- This fed inflation without improving competitiveness, deepening stagflation risks.
2025:
- The current administration has reintroduced or expanded tariffs on China, Mexico, and EU goods, especially in:
- Semiconductors & AI hardware
- Electric vehicles & batteries
- Steel & aluminum
- Tariffs are raising import prices, pressuring business margins and consumers, while offering limited near-term reshoring success.
Conclusion: Like in the 1970s, tariffs today act as a tax on the supply chain, compounding inflation without boosting growth.
2023–2025 YTD: Modern Asset Performance
How do assets fare now under this modern stagflation-lite scenario?
What Changed?
- Inflation is lower but persistent (vs. explosive in the '70s)
- Growth stocks are outperforming, thanks to tech leadership and AI capital inflows
- Real assets still offer some protection, but commodities are not spiking
- Tariff-driven supply shocks are returning—but with more global interdependence, making results less predictable
Key Investment Implications
- Real assets (gold, energy, commodities) remain vital hedges.
- Diversification into inflation-resilient sectors is essential.
- Long-duration assets (bonds, growth stocks with weak cash flow) remain vulnerable to rate volatility.
- Tariffs act as a stealth inflation force, requiring adjustments in supply-chain-heavy portfolios.
Final Thoughts
While 2025 is not a carbon copy of the 1970s, the similarities are enough to take notice:
- Growth is weakening.
- Inflation is sticky.
- Protectionism is rising.
- Central banks have limited room to maneuver.
Investing in a stagflation-prone world means rethinking traditional strategies and embracing resilience, real returns, and policy awareness.
What’s your take—are we headed for a multi-year stagflation regime or a short policy-induced slowdown? Let’s discuss.
