- The U.S. economy remains strong in the face of late-cycle concerns.
- Expect heightened volatility and slower growth ahead.
- U.S. equities aren’t likely to match stellar returns of past 9 years.
- Look for companies with solid dividends and long runways of growth.
Age is just a number. But at 114 months and counting, it’s fair to say that the U.S. economic expansion is getting old. Consider that the average expansion since 1950 has lasted 67 months. Does that mean the U.S. is long overdue for a recession?
“We are presumably late in the game, but there is always the possibility of extra innings,” says portfolio manager Don O’Neal. “These cycles can go on for a long time. It all depends on the fundamentals.”
Economic cycles tend to continue indefinitely until some type of catalyst brings them to an end. The catalyst is usually a clear imbalance that arises over time in the economy, such as the housing bubble of the mid-2000s or the dot-com bubble of the late 1990s. The strength of the current expansion has been modest by historical standards and although government and corporate debt levels are elevated, a clear catalyst for derailing the expansion has not yet surfaced. Indeed, the likelihood of a recession in the next 12 months recently stood at just 14.9%, according to the Federal Reserve Bank of New York. The same model had exceeded 30% before each of the last seven recessions.