Morning Notes — Outlook

The past few weeks of NDX outperformance looked like lazy, low conviction buying as a 70’s-style stagflation narrative emerged while crude oil prices advanced into the $120s. Slowing economic growth generally helps the NDX outperform as real yields decline.  But a stagflation scenario must be a low probability (<10%) outcome given: 1) a comparatively benign move in crude oil prices to date; 2) oil, gasoline and distillates represent a much lower percentage of total consumption now and; 3) there’s no current unionization/wage-indexation trend to cause a wage-price spiral. The inability for crude oil prices to lift amid expectations for increased sanctions has helped reduce inflation expectations and allowed real yields to lift off suppressed levels