Given how long the bull market have been, and how long we been waiting for a recession, there is a case that we are near the tail-end of an economic cycle.
But the data from DataTrek make a case that we might be in a middle of the economic cycle than late.
Here is what is presented in DataTrek Research’s episode on The Compound show.
GDP
What you are seeing is the Atlanta Fed model of where GDP is going. The blue area shows where the analyst expects the GDP to hover around. The green line shows the Atlanta Fed’s estimate, which shows that the data bounced around the bottom of the 2% range. If the number is kept within the 2-3% range, the economy is actually healthy. The greenline seems to show that we are having better data due to better retail sales numbers recently.
Nowhere near a pessimistic range.
Gasoline Demand
Datatrek helps its clients track the gasoline demand every week.
The US uses roughly 9.5 million barrels of gasoline. Tracking this allows us to see the health of the economy because to get somewhere, you got to drive to somewhere. The brown line shows the demand last year across the year and the blue line shows the current year.
Current demand is soft but after July the blue line went above the brown line, indicating that the economy is not great but actually doing better with gasoline prices down.
“It is very difficult to have a recession when gas prices are declining. History just shows that.”
The VIX
This chart shows that the monthly VIX readings, which is the implied volatility of the S&P 500, going back to the 1990s:
The average VIX is 19.5. A mid-cycle market has a lower-than-average VIX regime. There seem to have a cycle to this and we might be in the middle of one.
Consecutive Job Losses (Economic shock)
Recessions have two sources primarily: Geopolitical or economic shocks.
The chart above shows the monthly jobs growth going back to the 1990s. The start of the past three recession shows three monthly of consecutive job losses. Recession usually starts when businesses started to aggressively laying off workers.
Recession usually requires a catalyst:
- 1990: Gulf War
- 2000: Dot-com bubble burst
- 2008: GFC
Crude Oil Prices (Geopolitical shock)
Before or during a recession, there is usually a spike in oil prices:
The black dotted line helps you tell when oil prices drop 20%.
Lower oil prices tend to extend economy cycles, high prices tend to end them. There were 8 periods where oil prices dip below 20% and in 5 of those, no recession followed in the next year. In 2 of them, the economy was already contracting. The last one was during covid period.
Oil prices would usually spike near 80% before or during recession.
High Yield and Corporate Bond Spread Over Treasury
This chart shows the spread of corporate bonds, and the high yield junk bonds over risk-free treasury:
The spread changes over time. When the market is worried about recession, the market demands a higher spread over risk-free before they can get invested in it. Thus, we see during those recession, or recession scares, the high yield and investment grade spread usually fan out.
We are not seeing it currently.
Nature of Earnings Growth
The chart below shows analyst earnings projection for 2025, aggregated by FactSet:
The numbers below show the swing of earnings projection. For example, Industrials show 4.1% this year to 12% projected next year.
These are projections but we are seeing that the numbers are broadening out.
The numbers still have to take place though.
Watch the Video if You are Interested
The link to the video.
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The post Data Seem to Indicate We are in a Mid-Market Cycle than Late. appeared first on Investment Moats.
