MW History says these 2 overlooked asset classes are the only real shield against 1970s-style stagflation
By Mark Hulbert
Wall Street fears higher prices and slower growth will sink all stocks - but small-caps and housing hold their own
Stagflation doesn't have to strangle your stock portfolio.
Keep this in mind as you confront the current scary narrative that, because of the Iran conflict and the accompanying spike in oil prices, the U.S. is in danger of repeating a period of stagflation similar to the 1970s and early 1980s.
Since investors who lived through that era are now retired, few on Wall Street can provide a reality check to keep the stagflation narrative from becoming greatly exaggerated.
Fact is, not all asset classes performed poorly between 1973 and 1982, when stagflation gripped the U.S. economy. Over that decade, the U.S. consumer-price index rose at an annualized rate of 8.7% and GDP's growth rate was barely half what it was in the prior two decades.
The chart above plots various asset classes' inflation-adjusted total returns over this stagflation decade. The first asset class that stands out is U.S. small-cap stocks, which beat inflation on a total return basis by 5.9% annualized from 1973 through 1982. While the widespread belief that stagflation is bad for stocks is accurate as far as the large-cap S&P 500 SPX is concerned, smaller stocks prove otherwise.
One key reason the S&P 500 underperformed in the stagflation decade is that in 1973 the index was dominated by a group of growth stocks with sky-high P/E ratios - the "Nifty Fifty" - which subsequently suffered huge declines. You could argue that the S&P 500 is even more concentrated; instead of 50 stocks, just five or seven, depending on how you count, wield outsized influence over how the index fares.
Read: Iran conflict hits a market that's more overvalued than during the 1973 oil shock
The second standout asset class is U.S. housing, which beat inflation by 5.5% annualized from 1973 through 1982. That's according to a comprehensive global database, "The rate of return on everything, 1870-2015." Unlike many other attempts to calculate the return on housing, this comprehensive database reflects both capital appreciation and rental income.
What about gold?
Notable for its absence in the chart is gold. It doesn't appear because it didn't become legal for U.S. citizens to own gold (GC00) until the end of 1974. Furthermore, an unknown but large portion of its performance in the several years thereafter represented pent-up demand, so its return during those years may not be a true reflection of its likely performance during future stagflation periods. But from the end of 1974 to the end of 1982, gold bullion produced an annualized inflation-adjusted return of 3.4% - less than the full 10-year real return of either small-cap stocks or housing.
You shouldn't be surprised by this result, even though gold enjoys a reputation as the go-to asset when inflation heats up. As I've discussed in prior columns, gold has a poor record as an inflation hedge over the short and intermediate terms. According to research conducted by Campbell Harvey, a Duke University finance professor, and Claude Erb, a former commodity-fund manager at TCW, gold is a good inflation hedge only when measured over extremely long periods - 100 years or more.
Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at mark@hulbertratings.com
More: This 'uncanny' S&P 500 chart suggests a bubble is bursting - and not just because of Iran
Plus: The bond market is flashing a signal not seen since before the 2008 crisis
-Mark Hulbert
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March 20, 2026 08:05 ET (12:05 GMT)
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