2024-04-15 12:52:52 ET
Summary
- The market cycle appears to be reigniting, suggesting a shift towards more cyclical assets like commodities and equities, despite the ongoing risks of a cyclical downturn.
- Although the overall momentum in corporate earnings, commodities, and interest rates continues to trend downwards, there has been a noticeable flattening in these trends over the past quarter.
- Signs of reacceleration are evident in commodities and Treasury yields, although this may not herald the start of a new cycle.
- Given the inversion of the yield curve and the high existing profit levels, a serious cyclical decline across major market indicators — stocks, Treasury yields, profits, and commodities — is likely forthcoming, though it may be temporarily postponed.
The following is an overview of the market cycle as it stands at the beginning of Q2 2024. In Q1’s update , I argued that “a disinflationary downcycle remains intact. This is favorable for Treasuries, unfavorable for commodities, and dangerous for equities. The expectation remains that yields are going to turn down decisively and bring stock returns with them; thus, the best place to be is likely long-term Treasuries.”
Here, I will argue that the market cycle now appears to be reigniting, but it is doing so from a rather high-altitude, oxygen-deprived position. In practical terms, this suggests that it is better to be positioned towards more cyclical assets — commodities and equities — and away from long-term Treasuries, despite the risk of a cyclical downturn.
As with the last cycle update, we will begin with the core of the cycle — corporate earnings — and work our way out, through commodities, interest rates, consumer inflation, equities, and GDP. A relatively detailed description of the market cycle was provided in the Q1 update, but at its most basic level, this is defined as 16-month rates of change in core variables, especially earnings, industrial metals, and interest rates. Other rates of change are sometimes more appropriate, depending on whether one wishes to describe/comprehend conditions or anticipate them....
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Market Cycle Momentum Reigniting (Q2 2024 Update)