The 1980s was the blueprint for the upcoming disinflation cycle and these are the stocks for it, strategists say

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Our call of the day from Jefferies is telling investors to start thinking about deflation and look at what happened in the good old 1980s.

Stocks are setting up for a third straight losing session after data sparked fears that the economy is losing steam, while the Fed pushes on with interest rate hikes. Or as CNBC commentator Ron Insana put it:

On that front, our call of the day from Jefferies tackles that idea. “Disinflation is a key assumption for our road map for 2023,” says Desh Peramunetilleke, global head of microstrategy, and analyst Mahesh Kedia, in a note to clients on Thursday.supply side pressures provide a good template for the current cycle. Broadly, quality growth stocks/sectors did better than value, and small-caps underperformed,” said the pair.

“Based on the sector correlation with the [10-year inflation expectations,] materials, energy, infotech and industrials are sectors to avoid when inflation is falling, while staples, utilities, communication services and healthcare are in focus,” said Peramunetilleke and Kedia. “Style-wise, investors should avoid GARP , value and reversion and focus on low risk and quality stocks during falling inflation.”As for stock ideas, Jefferies has some top disinflation plays to consider.

The markets Stock futures ES00 YM00 NQ00 are dropping as bond yields BX:TMUBMUSD10Y BX:TMUBMUSD02Y hover at four-month lows on recession worries. The dollar DXY is also down, along with oil CL, while gold prices GC00 are inching up. European stocks XX:SXXP have followed Wall Street lower, with much of Asia JP:NIK also in the red.

 

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