Last year we had a very deep but short recession due to COVID 19 after having the longest economic expansion in history. The economy is growing again, but how long will this last?
No one can be certain about the answer to this question, but history gives us a helpful clue. Viewing the left side of the chart below, economic expansions, the gray bars, have averaged 48 months since 1900. However, if you look over the last 40+ years, they have tended to be much longer. I believe the longer expansions are due to the fact that the US is more service economy and not the manufacturing economy that it was in the past. And despite increased US manufacturing jobs over the last four years, this has not changed.
So it stands to reason that the fledgling gray bar on the right of this chart, the new economic expansion that started in the third quarter of 2020, probably has a long way to run.
This has investment implications. A growing economy increases company profits which push up stock prices. Yes the stock market has some bumps along the way in an economic expansion, but has rewarded investors who have the appetite and ability to hang in their during the rough patches.
Please feel free to contact us about what this may mean for your own situation and portfolio.