FDIG - Winter Follows Autumn
2024-07-01 14:20:00 ET
Summary
- Every multi-year bull market in U.S. history eventually becomes overheated with above-average inflation. This is followed by a choppy, dramatic slowdown during which inflation unevenly declines while GDP growth decelerates and eventually goes negative.
- Then, just as autumn must lead into winter, negative GDP growth - also known as a recession - is accompanied by an equity bear market.
- The Russell 2000 and many other consistently reliable leading indicators have been in bear markets since 2021, with numerous lower highs along the way.
Many investors have embraced the mythical "soft landing" scenario. Every multi-year bull market in U.S. history, with steady growth and low inflation, eventually becomes overheated with above-average inflation, just as every moderate spring season is followed eventually by a hot humid summer. This overheating is followed by a choppy, dramatic slowdown during which inflation unevenly declines while GDP growth decelerates and eventually goes negative. It is similar to summer being followed by autumn. Then, just as autumn must lead into winter, negative GDP growth - also known as a recession - is accompanied by an equity bear market. As often as this scenario has repeated itself in the United States since the 1700s, many people today are convinced that we're going to magically transition from colorful falling leaves directly into blossoming flowers and warming temperatures....
Winter Follows Autumn