METV - The Outlook For The U.S. Economy Is Bullish

2024-04-24 09:55:00 ET

Summary

• Hard economic data is likely past its trough, and should continue to accelerate as we progress through 2024.
• We are still in the early stages of the next expansionary phase in the business cycle. The lead indicators of the business cycle suggest we should continue to see growth accelerate over the next 12 months.
• Economic growth conditions should continue to be supportive of risk assets, though investors should keep in mind long-duration sectors such as tech and semiconductors have largely priced in the entire upswing in the business cycle.
• Commodities and cyclical sectors appear to offer the best risk-reward moving forward, given they stand to benefit from a pick-up in economic activity and have priced in little of the forthcoming expansionary phase of the cycle.

The economy has likely bottomed

My business cycle analysis has been suggesting for some time hard economic data should have bottomed throughout 2023, while economic activity should start to accelerate to the upside as we progress through 2024. There is an increasing amount of evidence suggesting this is the case, thus it appears the business cycle is past its trough and should continue to rebound throughout 2024.

Let’s begin our review of the current state of the business cycle by reviewing the primary hard economic data points that define the cyclicality in economic growth. While this is a useful exercise, we must keep in mind hard economic data (such as industrial production, employment, GDP etc.) are all coincident and lagging in nature. They are all reported on a lag and tell us where the economy was two to three months ago, not where it is currently nor where it is heading.

So, with that in mind, the below chart illustrates my Business Cycle Index, which is a composite of the primary hard economic data points used by the NBER to track the business cycle, and includes industrial production, real personal consumption expenditures, real incomes excluding government transfers and employment. As we can see below, this composite of hard economic data looks to have bottomed out in late 2022/early 2023, the point which seemingly marked the trough for this cycle....

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