Pring Turner Capital Group

In February this year we wrote an article entitled A Funny Thing Happened on the Way to the Recession. Fast forward to the current situation, where opinion has shifted away from recession in favor of a soft-landing scenario. Does that same contrary analysis mean a recession is now more likely? The simple answer is no, not yet anyway!

If 2022 was the zenith of the post financial crisis bull market, the intervening year and a quarter is a relatively short period from which to conclude that a turn in the secular tide has taken place. That said, several indicators have already begun to signal a change in trend.

The US economy has reached a crucial juncture point, as several leading economic indicators are on the edge of signaling a recession.

Growing Evidence the Secular Trend in Stock Prices May be Reversing! We can’t be sure that the equity secular bull market for stocks is over, but it’s quite apparent that several reliable indicators are moving in that direction. Many others are on the brink of a sell signal.

In March of last year, we wrote an article entitled “Timing the End of the Tech and Bitcoin Bubbles”. Our conclusion for Bitcoin was that it was indeed in a bubble but that there was insufficient technical evidence at the time indicating its bursting.

In an October 2021 article, we made the case for a new secular commodity bull market and concluded that this environment would likely spill back into the economy and stock market.

We are in uncharted waters on many fronts, so no one can really answer that inflation/deflation question with any degree of certainty. We can however, look to the technical condition of commodity markets for guidance, since they have usually, acted as a barometer for more generalized swings in inflationary and deflationary pressures. Commodity prices look poised to signal a new secular bull market, which would likely broaden out to result in the highest more generalized inflation rates since the 1970’s.

A better appreciation of the history of market bubbles should help advisors and their clients sidestep some of the carnage when they inevitably burst. It is our intention in this article to take a more clinical approach by quantifying what we mean by a “bubble” solely in terms of market action. In that way, it is possible to compare conditions between individual markets and arrive at a rough standard. There are of course, many other aspects to bubbles and manias, several you can read about here.

We see five independent areas providing evidence of a commodity bull market. They are, commodities themselves, the economy, and the bond, stock and currency markets. Let’s consider them in turn to see if this time commodities can fulfill their promise.

After a wicked stock market decline into late March and impressive 60% advance off the low, it seems a stretch to expect still higher equity prices. However, a major extension to the post March rally is definitely supported by the five reliable long-term indicators featured in this research note. Their current position is far more consistent with a major long-term buying opportunity than a selling one.

Putting it all together, it seems likely that we are dealing with a short but sharp recession. The resultant recovery will initially look strong from a momentum point of view. That’s because the economy will quickly open up, egged on by the positive effects of record monetary, fiscal stimulus and over time with the reshoring of manufacturing jobs.

Always being alert and anticipating the next inflection point in the business cycle can help you actively manage your investments while taking advantage of emerging profit opportunities and more importantly protect your wealth from the inevitable cyclical declines. This exceptionally long business cycle appears set to emerge from its third growth slowdown and has now reached the stage where a cyclical bull market in commodities can be expected.

Even though we have already experienced the longest expansion on record, the latest data suggest the possibility of a resurging level of business activity as the economy emerges from its third post 2009 slowdown. As a follow-up to our July article, Recovery or Recession? Ask the Stock Market Stupid!, here’s our latest business cycle update.

Even though there has been no recession for 10 years, students of the business cycle know that it is still alive and well. Instead of a full-blown contraction in business activity, the last decade has seen the US economy experience two mid-cycle growth slowdowns and subsequent recoveries. A third slowdown has been underway for the last year, begging the question of whether it will morph into a recession or transition into a fourth growth phase of this extended economic expansion.

There is little doubt that the US economy is in a state of slowdown. The big question, is “How will the economy emerge from this slowdown?” Will it be with renewed growth like 2016? or Does it fall into a full-blown recession a la 2007? The answer to that question is unknowable at this point in the cycle.