In the nearly five years since the start of the pandemic, markets have traversed a long and winding road, full of hazards and pit stops along the way. The journey has been rife with uncertainty, but one thing is assured — we’re not going back to where we came from.
We’ve closed the books on protracted periods of near-zero interest rates and nearly nonexistent inflation, meanwhile technology keeps marking new milestones and the evolution of geopolitics carries on. Likewise, the forces of monetary policy, fiscal policy and inflation continue to shape the road ahead for the business cycle and ultimately, financial market performance.
It's remarkable to think we began last year with such all-encompassing uncertainty; we posed questions about inflation, interest rates, consumer health, election outcomes, recession, market breadth, yields and earnings growth. Despite the lack of clarity, consumer strength persisted, financial markets forged ahead (and hit new highs), and the economy managed to avoid recession. With inflation largely reined in for now, Federal Reserve (Fed) interest rate cuts underway and the elections behind us, it’s natural to wonder where we go from here. Does the economy have enough gas left in the tank to keep going?
The global, synchronized pivot toward monetary policy easing may be just the kickstart that the business cycle needs to rev up and accelerate from the tail end of the slowing expansion phase. Still, there remains the possibility that inflation reignites (for various reasons) or that changes in fiscal policy lead the cycle off course. However, should these macro forces remain supportive, we believe the market may finally see earnings growth broaden beyond just mega-cap tech — a necessary factor, in our view, for sustainable, positive performance.
In this edition of Strategy Insights, we explore how key market-shaping forces may be aligning to shift the business cycle into a new gear and drive a mid-cycle reacceleration in the business cycle in 2025.
