waiting for the rebound

There are lots of factors in today’s world economy that aren’t run-of-the-mill. Near-term ones include:

–the invasion of Ukraine and its effect on world politics as well as the supply of fossil fuels. This also has implications for the speed at which the world shifts toward alternatives

–recovery from the pandemic and its reshaping of the way economic activity is conducted. Negative effects on demand for office space causing investors to reconsider the blue chip status of this sector among real estate investments, for example. Or the failure of Silicon Valley Bank underlining the stunning incompetence both of some smaller bank managements and of the corporate treasurers who placed their (uninsured) deposits–earning far below money market rates–in them

–the worry that extremists in Congress will remain so caught up in theatrical performance that the country will default on its sovereign debt

–the revival of Reconstruction-era white racism, with its attendant anti-education and anti-immigrant beliefs (I’m a fan of Heather Cox Richardson–although I think hers isn’t the whole story of current economic stagnation)

Thinking not as a human being and an American but as a stock market investor, it’s hard to see an easy way to factor these last two thoughts into an equity strategy. No shock that crypto has rebounded sharply since the November election, though.

I’ve been asking myself recently: if right now were the beginning of a normal business cycle (which it isn’t), where would we be? Typically, we would have already had the first informal indications that things were beginning to get better. Stocks would begin to move up in anticipation of the return to normality. Signals from the Fed that the next move in money policy would be toward looser money, not tighter would strengthen the advance. After that, the market would go sideways for six months or so, until company announcements began to show significant earnings gains. This would be the final all-clear signal that would get the market rolling again.

Does this pattern apply to our situation now? If so, where are we in the progression?

My guess is that it does and that we’ve already gotten, and reacted to, the initial all-clear signals. We’re now in the two quarter or so waiting period for earnings growth to kick in.

One other point: typically new leadership emerges in the up market, outpacing by a wide margin the past cycle’s strong performers.

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