Dillon. I agree with a lot of what you wrote in your post. I have similar perspectives on 2024.
One area where I continue to search for good answers is trying to find a good economic cycles diagram that explains where we have been, where we are today and could be heading in the future. E.g. I don't see us at the Yellow star in the picture above. Currently stocks are close to all time highs. The economy is all over the place. Some sectors peaking. Some sectors in the dumps. Economic data is not pointing towards a recession yet. Q3 GDP growth was +5.2%! The standard economic cycle is not playing out as per the text books. Just ask the Conference Board. Their LEI index has been predicting a recession for 19 months in a row...they will be right sometime in the future...or maybe not. Cheers!
This has been a very unique economic cycle. On one hand, we have seen earnings revised down and many companies experiencing revenue & earnings contraction. Then, on the other hand we have GDP continuing to grow. For the sake of this article and my “framework” of thought (not saying I’m 100% correct, because this is never a perfect game) I’m thinking about it from and earnings & revenue growth perspective.
If we look at earnings growth for the S&P 500 we experienced earnings contraction from Q4 2022 to Q2 2023 (source is Yardeni earnings) which is a type of earnings recession. We’re rounding the end of this cycle and transitioning more toward an expansionary phase and I think credit conditions easing will further this expansion. Even in the case of rising unemployment.
Like I mentioned, this is certainly not a perfect science but when it comes to earnings and revenue growth with stocks, this seems to be (roughly) where we are in the cycle. For reference, in 2008/2009 cycle we saw company revenue and earnings bottom about a year before unemployment peaked. The two are not necessarily correlated using history as our guide.
Dillon. I agree with a lot of what you wrote in your post. I have similar perspectives on 2024.
One area where I continue to search for good answers is trying to find a good economic cycles diagram that explains where we have been, where we are today and could be heading in the future. E.g. I don't see us at the Yellow star in the picture above. Currently stocks are close to all time highs. The economy is all over the place. Some sectors peaking. Some sectors in the dumps. Economic data is not pointing towards a recession yet. Q3 GDP growth was +5.2%! The standard economic cycle is not playing out as per the text books. Just ask the Conference Board. Their LEI index has been predicting a recession for 19 months in a row...they will be right sometime in the future...or maybe not. Cheers!
This has been a very unique economic cycle. On one hand, we have seen earnings revised down and many companies experiencing revenue & earnings contraction. Then, on the other hand we have GDP continuing to grow. For the sake of this article and my “framework” of thought (not saying I’m 100% correct, because this is never a perfect game) I’m thinking about it from and earnings & revenue growth perspective.
If we look at earnings growth for the S&P 500 we experienced earnings contraction from Q4 2022 to Q2 2023 (source is Yardeni earnings) which is a type of earnings recession. We’re rounding the end of this cycle and transitioning more toward an expansionary phase and I think credit conditions easing will further this expansion. Even in the case of rising unemployment.
Like I mentioned, this is certainly not a perfect science but when it comes to earnings and revenue growth with stocks, this seems to be (roughly) where we are in the cycle. For reference, in 2008/2009 cycle we saw company revenue and earnings bottom about a year before unemployment peaked. The two are not necessarily correlated using history as our guide.