Wednesday, December 20, 2023

Late Cycle Environment

Numera Analytics just published their year-end macro strategist commentary... If you've been keeping up with our year-end message to this point -- Part 2  and the recent video update, where we delved into yield curve dynamics, in particular  -- the following from the aforementioned commentary will ring very familiar. 

I.e., while we're not consensus right here (which, frankly, only emboldens our conviction), per the below, we're not the only ones seeing what we see:


"As discussed above, growth benefited from strong consumer spending. This, in turn, reflected two COVID­ related tailwinds: strong job creation by contact services, and high pandemic savings. Consumers have now largely burnt through these excess savings (F6), eliminating a key source of support in a context of very high borrowing costs.

The fact that policy rates have peaked and unemployment has bottomed out suggests the economy is nearing the
end of its expansionary cycle. This kind of ‘late cycle’ environment has occurred six times since the Fed started to prioritize price stability under Volker in the early 1980s. Only in 1995 did Greenspan’s Fed achieve a ‘soft landing’, with every other episode (1980, 1990, 2000, 2007 and 2019) resulting in a downturn.

T1 compares the current state of the economy to past late cycles. Macro conditions resemble these five episodes more than they do 1995. One key distinction is that Fed policy is much more restrictive, as illustrated by the fact that real rates are 300+ bps above the level consistent with full employment – the widest interest ‘gap’ in five decades.

Similarly, many recession signals were not flashing red in early 1995, whereas they are today. The most worrying sign is the inversion of the Treasury yield curve, the only predictor with no false positives in the past fifty years."


  1. Thanks for the great analysis Marty!
    I am with you and surprised for the fact that Fed Powell pivoted last week. I am more surprised with some Fed members today voicing concerns about the huge surge in the stock market (something they created for every step of the way). I am dumbfounded on the inconsistency of the Fed for the past 21 months (big swings up and down on the same day). Is the horse leading the rider or the rider leading the horse? History is the final judgement of that. Patience is the virtue of everything. Thanks for guiding us through the uncharted territory in the market.