From Investing.com: 2024-04-16 05:56:00

Economic “reflation” narrative is gaining popularity as equity valuations continue to outpace earnings growth. Interest rates, commodity prices, and bullish sentiment have risen in recent months. This narrative reappeared in 2009, predicting economic growth, higher interest rates, and commodity prices. The “reflation trade” relies on robust economic activity for commodities to rise, but falling demand can hinder this. The US avoided recession in 2024 due to significant government spending. However, the economy’s future growth is uncertain as governmental support wanes.

Interest rates and inflation spikes have driven investors to gold and commodities, but this may be speculative exuberance rather than true economic recovery. The surge in economic growth last year defied recession expectations, fueled by government spending. As the monetary support tapers off, economic growth may slow. Rising debt levels divert funds away from productive investments. History shows that previous attempts to spur economic growth through “reflation” may not lead to sustainable long-term progress.

In 2009, post-Financial Crisis, the government intervened to revive the economy, but growth, inflation, and interest rates remained subdued. Excessive debt and low interest rates suppressed inflation and economic activity. Commodities initially rose, but equities became the preferred investment due to liquidity. Despite recent increases in precious metals and commodities, this may signify speculative market behavior rather than economic revival. The reflation narrative could be at risk due to unsustainable debt levels and policy decisions that favor the wealthy over the middle class.



Read more at Investing.com: Reflation Trade Is the New Bullish Narrative