Not a Normal Cycle

The question remains, “why have so many economists and Wall Street strategists gotten this economic cycle wrong?” As we know, many have been predicting a recession for almost two years. Important indicators, such as an inverted yield curve, (one where short-term interest rates are higher than long-term ones) have been good predictors in past cycles. Worries about people running through their excess savings from the largess of government support during the pandemic, the impact of higher inflation, and concerns about the sustainability of high employment, all added to their conviction that a downturn was soon at hand.

What so many got wrong is that this is not a normal cycle. The economy is still climbing out of the pandemic and the damage that shutting down the economy wrought. When the economy reopened, not everything was able to get back up to speed at the same time. Therefore, shortages of supplies and products persisted for months afterward. Consumers also went through shifts of where they focused their discretionary purchases. At first it was all about making themselves comfortable and safe in their homes, and then playing catch-up on travel and leisure. We are just now finally getting back to normal patterns with a better balance among the various needs and wants.

The Federal Reserve is now at the end of its tightening cycle. Inflation is retreating. Interest rates will also be coming down beginning sometime next year. In the meantime, Federal programs, investing in infrastructure, helping make a transition to green energy, and supporting reshoring of critical industries, are now getting going. Wages are keeping pace with inflation and employment remains high. It is hard to see a recession with all this economic support. Good economy and a good stock market seems most likely for 2024. Stay steady my friends.

The Lonely Bull