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Step 1 Focus on Where You Are in the Economic Cycle

The economic cycle can be separated into four phases: reflation, recovery, overheat, and stagflation, based on the level of two economic indicators: economic growth rate and inflation rate.

You can identify the economic cycle phase with the below image, which can help you find the best-performing sectors.

Stagflation is a combination of elevated inflation, slowing economic growth, and high unemployment. This can lead investors to focus more on sectors that have a history of outperforming during this stage.

Step 2 Pay Attention to Sectors that Have Historically Outperformed During Stagflation

The table below shows the average historical return of 10 global economic sectors versus the MSCI World Index during stagflation. History has shown us that several sectors can perform well in stagflation.

5 Sectors to Look at During Stagflation

1. Utilities

Utilities are companies that provide basic services such as electricity, water, and gas. The demand for these services remained relatively stable during stagflation.

2. Consumer staples

A tried-and-tested way the consumers respond to inflation is to switch from expensive products to cheaper ones. Large supermarket chains known for their low prices could stand out during stagflation.

3. Real estate

As they are linked with consumer prices, apartment and office rents rise with inflation. Increased construction costs can irritate the housing shortage and drive up real estate prices.

4. Precious metals

Stagflation can cause economic uncertainty and high volatility, while precious metals like gold and silver, which preserve their value, may become less volatile. These metals are immune to the fluctuation of interest rates set by central banks. Therefore, their prices usually rise when stagflation hits.

5. Energy

Energy stocks can might do well when inflation rises as their revenue is tied to energy prices, which is a core element in measuring the level of inflation. Oil and gas are closely watched among energy sectors.

According to asset management firm Schroders, energy stocks rose 15% in the 1970s, which was an impressive stagflation period.

The energy sector's performance ranked in the top spot among 11 sectors of the S&P 500 in 2022 with a price increase of 56.9%, reported by financial data company, FactSet.

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Step 3 Find Sector Stocks on Webull

• Industrial Heatmap

You can view the Industrial Heatmap on Webull at the bottom of the “United States” tab on the Market page. The greater the increase or decrease of the market cap, the darker the corresponding color. You can also see the updated industry rankings in different time horizons and each top gainer by clicking “View All”.

• Screener

Filtering by sector and other indicators, like ROE, can narrow the range of stocks that may interest you.

Click here to access Screener>>>

• ETF Top Movers

If you are interested in a certain sector, you may also consider sector ETFs, as risk is diversified among the various equities held in the ETF. Webull offers a list that shows all available ETFs.

Go to the ETF Top Movers list>>>

Disclaimer: All companies and symbols provided are for educational and informational purposes only and do not constitute an investment recommendation or advice.

The Bottom Line

Understanding each economic stage can help us recognize the environment we are in. For potential stagflation, focusing on sectors that may do well is key to weathering a tough market. Don't forget to add the stocks you are interested in to your watchlist!