Flashing Yellow: Solving the Equity Market’s Economic Puzzle

The recent record-breaking rally in the equity market has led many investors to believe that the Federal Reserve has successfully orchestrated a soft landing, signaling a green light for entry into a prosperous new economic cycle. However, amid this optimism, nuanced data points paint a different picture, casting a cautionary yellow glow on the seemingly smooth path ahead.

In this installment of The Wealth Enterprise Briefing podcast, WE Family Offices Managing Partner Michael Zeuner and Senior Investment Manager Sam Sudame, CFA, CAIA, CFP, continue their discussion from a previous episode to put together the puzzle pieces laid before investors and provide insight into when we may finally enter a new economic cycle.

Key topics explored in this episode include:

• WE’s Comprehensive Framework for Identifying New Economic Cycles: When investigating the intricate transition phases in the economy, WE employs an equity strategy framework that encompasses fundamentals, valuation, sentiment and liquidity.
• Economic Outlook for 2024: Based on the framework, the economy will likely face volatility in the new year, driven by delayed headwinds from the Federal Reserve's assertive monetary policy.
• Equity Market Expectations vs. Economic Reality: As the equity markets surge with optimism that we are in a new economic cycle, a substantial gap emerges between market performance and future earnings, paving the way for considerable volatility ahead.
• Soft vs. Hard Landings Examination: A crucial element in determining the likelihood of a hard or soft landing involves scrutinizing cyclical areas in the economy that drive the cycle. Currently, indications persist that a hard landing remains a viable scenario in the future.

Collectively, when the pieces of WE’s equity strategy framework are assembled, the completed puzzle flashes yellow lights, suggesting that we are entering the beginning of the end of the current economic cycle. With heightened volatility looming on the horizon, it might be time for investors to navigate cautiously and refrain from impulsive portfolio moves. If you have any questions regarding our current economic landscape and its potential impacts on your portfolio, please don't hesitate to  contact us.