As depicted by Macro Research Board, the current cycle has been “abnormal.” The depth of the downturn in 2008 led to deleveraging and risk aversion in the financial and household sectors. This, coupled with the sheer weight of aggregate debt, has caused “a prolonged risk on/off environment.”  This has “undermined investor confidence,” and “slowed the transition between the policy-induced rally and growth-driven upleg” seen in previous cycles.

 

The GDP output gap remains and inflation is stubbornly low. But, global monetary policy remains accommodating.

pro growth monetary policy

 

Bull markets typically end when policy becomes restrictive. This is not the case today.

bull ends when policy restrictive

 

The counter trend pull back and transition from the policy-induced rally to a growth-driven rally has been choppy. Recent geo-political events have exacerbated the risk on/off environment. Investors are extremely cautious right now, they fear rate hikes will undermining growth.

attempt at phase 5

 

But factors still favor growth; and, the global economy and earnings are poised for improvement, strength and momentum. Should this transpire, it would support further equity advances and potentially lead to a high conviction rally. MRB’s cyclical, phase 5 rally historically lasts 70 weeks and produces an average 40% stock market out-performance.

 

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For information on Alhambra Investment Partners’ money management services and global portfolio approach, Douglas R. Terry, CFA is reachable at: dterry@alhambrapartners.com

This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any particular security, strategy, or investment product. Investments involve risk and you can lose money. Past investing and economic performance is not indicative of future performance. Alhambra Investment Partners, LLC expressly disclaims all liability in respect to actions taken based on all of the information in this writing. If an investor does not understand the risks associated with certain securities, he/she should seek the advice of an independent adviser.

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