All Markets Are Cyclical—When Will This One End?
The comments below are an edited and abridged synopsis of an article by Lance Roberts
Markets and the economy not only cycle, but cycle together. Knowing when these cycles will occur isn’t that simple.
There is no magic formula that can tell you to go all in, or to cash out, today. However, when valuations are elevated and interest rates are rising, taking on excessive portfolio risk will have a low future return.
Today, there are plenty of warning signs that suggest we are nearer the top of this particular cycle than not.
All of those signs suggest an economy, and a market, that is fully matured. Things are as good as they can get, which happens at the end of a cycle rather than the beginning.
Roberts discusses interest rates, strain in the financial ecosystem, and the 2008 financial downturn. There are 3 lessons to learn from all of the above: The economic number reported today will not be the same when it is revised in the future; the trend and deviation of the data are far more important than the number itself; record highs and lows are records for a reason, as they denote historical turning points in the data.
Here is the important point: No one knows for sure when, but this cycle will end.
The recent spike in rates, combined with rising oil prices, is a toxic brew for a heavily indebted consumer both domestically and globally. Rising rates have already accelerated the timing of the next recession, and it is now only a function of time until something breaks.