Climbing the Wall of Worry

Markets are flashing warning signals – slowing labor markets, rising delinquencies, an inverted yield curve, sahm rule triggered and this all typically screams 'recession.' But what if the current backdrop has more in common with the late '90s than the GFC? It could mean that we are heading for a late-cycle rally that takes us to new highs, rather than a crash. While you can run the risk of saying “this time is different” , dangerous statement for sure , maybe we just looking at the wrong period and forgetting we haven’t had a supply driven shock like that which was caused by the pandemic. So can all these typical recession indicators apply right now? I can guarantee we will have a US recession in the future and a big market sell off but does that mean its imminent and should we try time the market based on these indicators above?

Disinflationary Tailwinds : Unlike the demand-driven inflation of past cycles, today’s inflation was largely a supply-side shock that’s already easing. We saw this pattern before in the late 90s – inflation cooled even as markets climbed, aided by rapid technological advancements (hello, AI).

Fed Cut? In the late 90s, the Fed cut rates mid-expansion to prevent a crisis. Fast Forward to today: with inflation easing and rate-sensitive sectors stabilizing, the Fed just cut 50 bps into a still growing US economy. And we know what happened post-1998...markets roared.

Broadening Gains : The 'Magnificent 7' stocks may have led the way, but the broader market is starting to catch up. Much like in the late 90s, when tech took the lead, this could set the stage for a ‘blow-off top’ across multiple sectors. Small caps, financials, and even industrials are poised for a lift in 2025.

Productivity Boom: Just like the dotcom era’s IT investment boom, today’s AI revolution is driving rapid labor productivity gains. These tech-driven tailwinds could extend the cycle far longer than bears expect.

The Wall of Worry is Real : The market always seems to climb a wall of worry, and today’s concerns are eerily similar to those of the late 90s. Corrections were sharp and quick, but they were followed by furious rallies.

Sure, risks remain, there always are – but betting against innovation, productivity, and Fed could be costly. As a house we always tend toward caution so keeping risk on but favouring cheaper sectors/regions and hedging with bonds that are paying you to hold them