Clockwise: Still in Stagflation?

The summer equity rebound has not removed the risk that markets are entering a stagflationary phase in which commodities outperform while equities and bonds struggle.

• The S&P 500 recorded its best August in five years, and strong global data and corporate earnings lifted major equity indices close to record highs after the late-July lows.
• Middle East disruptions have sharply reduced traffic through the Strait of Hormuz, while Houthi attacks near Bab el-Mandeb and the shutdown of Saudi Arabia’s East-West pipeline have exposed further supply vulnerabilities.
• Brent oil briefly reached $110 a barrel intraday on 11 September and remains above $100, with low crude flows through Hormuz providing a floor to energy prices since the war began in March.
• US long-dated yields reached their highest level since 2007 and German yields their highest since 2011, driven by inflation concerns, strong economic data and renewed fiscal worries.
• RLAM’s portfolios added to equities when sentiment became oversold in August, then reduced the position as sentiment normalised; investor nervousness also increased after Anthropic, OpenAI and SpaceXAI executives called for slower AI development and tighter oversight.

Takeaway: The Investment Clock remains in Stagflation, so further Middle East uncertainty, inflation and fiscal concerns could push yields higher and pressure equities, particularly if Fed hikes slow economic activity and earnings; commodities appear better positioned, but the outlook remains finely balanced.