Following the post-COVID stimulus hangover in 2022, the bull market has continued to run. One of the key factors was the Federal Reserve’s decision to
Recovery Bulls Climb the Mountain
“The hills are alive with the sound of music, with songs they have sung for a thousand years.” – The Sound of Music, Richard Rogers and Oscar Hammerstein II
Are we at the top of the mountain, or are investors still scaling the foothills? As we celebrate the 4th anniversary of the global economic recovery and with world stock markets making all-time highs earlier this month, this is the number one question on most investors’ minds.
This economic recovery has been like no other, with as many cliffhangers, plot twists, villains and heroes as the finest of cinematic endeavors. In fact, as we move into the summer movie release schedule, we can’t help but think of the last 4 years of economic recovery in the context of a significant film franchise – part drama, part comedy and with a fair bit of suspense and horror mixed in along the way. In retrospect, it might look a little like this …
Following the 2008 blockbuster release of “The 100 Year Flood”, the unanticipated disaster film chronicling the final days of the Great Housing Bubble and the almost biblical cleansing of leverage and greed throughout the system, investors began their long road to recovery. Realizing that everybody who saw that film never wanted to see it again, the producers of the franchise released the back-to-back, feel-good thrillers “Easy Money” and “Kick the Can Down the Road”. Both of these Herculean efforts were groundbreaking in terms of their bold decision making and never before seen action scenes. While not critically well-received by many in the industry at the time, the stars of those films are now widely credited for the successful box office receipts the franchise is currently enjoying.
After the single-day release of “Flash Crash”, about a series of vulnerable computers on a three-minute bender on a Thursday afternoon, the 2010 summer release of “Eurozone Break-Up” was a return to the suspense genre for investors. For many it was too much, too soon for them to handle… but the story of the relationship between northern Europe and southern Europe, and whether they should seek a divorce over irreconcilable differences, caught investors’ attention. We would have to wait for the sequel “Eurozone Break-Up II” the following summer, for a more dramatic and satisfying conclusion as the leaders of Europe took a page from ‘Braveheart’ in defending their sovereign rights to the very end. It was a perfect example of that rare occurrence in which the sequel is actually better than the original.
Spanning this period, the lesser known cult-classic “A Flock of Black Swans” came to market, documenting investors’ tenuous grip on reality as immediate rear-view mirror images of 2008 colored their collective memories. The screenplay covered Chinese economic growth concerns, state budgetary constraints, the fits and starts of a choppy recovery… all filmed in beautiful cinematographic style in a variety of geopolitical hot spots around the globe. In a surprise ending, the main characters miraculously outmaneuver a seemingly inescapable living nightmare, though the feel-good outcome was substantially due to the generally lowered expectations of audiences everywhere.
As the film franchise matured, it took on US fiscal policy, chronicling it in 2011 with the opening summer installment of the movie, “Debt Ceiling”. The downgrade of US debt after the default brinksmanship in Washington made investors’ jaws drop but contained a clever plot twist – interest rates on Treasuries fell to all-time lows, creating a positive stimulative effect on the economy! The holiday sequel, released at year-end 2012, was shot as an old-fashioned Western showdown, titled “The Fiscal Cliff: Debt Ceiling II”, ending with feel-good holiday compromises on a number of tax and spending issues for the country.
This quarter’s premier of “Sequestration”, a film loosely based on the life and times of Sequester, the overlooked thoroughbred race horse that is the US government, was a well publicized event that became a hugely popular media sensation, managing to lock in place $85 billion in annual spending cuts beginning in 2013. While successful in outcome, market audiences greeted the actual release with a collective yawn.
The combination of these final three films ushered in the release of the “New Normal”, a film that made no apologies for lower growth and lower returns on a going forward basis. Although it took 4 years to produce, the audience wasn’t too sure what to make of it. While normally a new record high in the markets would be wildly celebrated, this time around it just seemed a little nonplussed.
Looking forward, the market is anxiously awaiting the latest quarterly installment of the reliable but incredibly dry series “Earnings Season” which is playing alongside of the long anticipated “The Return of Normalcy”, an epic fantasy drama that chronicles the final installment in a long running series marking the end of the “risk on, risk off” environment.
The good news is that the best of the franchise is likely just getting started. The optimistic and triumphant film entitled “The Great Race” is rumored to chronicle a resilient and accelerating private sector in the face of fiscal contraction, reflecting the persistence of the human spirit as the US finally escapes economic purgatory, a view also reflected in the stock market.
The producers are also considering whether or not they will need to release the remake of “Inflation Genie”, the story of an old foe that central bankers try to keep in check, and investors try to beat – but with a new twist as this time around some of the developed world’s biggest central banks try to deliberately conjure and control this powerful spirit.
We have made great progress over the last 4 years. Our banking system is on stronger footing, corporate profitability and valuation metrics remain healthy, particularly for equities versus low-yielding bonds, and the labor and housing markets are slowly improving. But we also face slowing economic momentum as stimulus measures begin to wind down and the economic recovery naturally matures. Additionally, at the time of this writing, numerous geopolitical events are percolating and policy-makers around the globe are re-thinking some aspects of their approach.
Movies are ultimately an escape, a luxury pastime with parable-packed screenplays and satisfying story arcs. And though markets are rarely as entertaining to watch, let alone as predictable, the reality is while there are reasons to be optimistic about the long-term market outlook in the years to come, we also must acknowledge the risks that now exist in the current environment.
Articles and Commentary
Information provided in written articles are for informational purposes only and should not be considered investment advice. There is a risk of loss from investments in securities, including the risk of loss of principal. The information contained herein reflects Sand Hill Global Advisors' (“SHGA”) views as of the date of publication. Such views are subject to change at any time without notice due to changes in market or economic conditions and may not necessarily come to pass. SHGA does not provide tax or legal advice. To the extent that any material herein concerns tax or legal matters, such information is not intended to be solely relied upon nor used for the purpose of making tax and/or legal decisions without first seeking independent advice from a tax and/or legal professional. SHGA has obtained the information provided herein from various third party sources believed to be reliable but such information is not guaranteed. Certain links in this site connect to other websites maintained by third parties over whom SHGA has no control. SHGA makes no representations as to the accuracy or any other aspect of information contained in other Web Sites. Any forward looking statements or forecasts are based on assumptions and actual results are expected to vary from any such statements or forecasts. No reliance should be placed on any such statements or forecasts when making any investment decision. SHGA is not responsible for the consequences of any decisions or actions taken as a result of information provided in this presentation and does not warrant or guarantee the accuracy or completeness of this information. No part of this material may be (i) copied, photocopied, or duplicated in any form, by any means, or (ii) redistributed without the prior written consent of SHGA.
Video Presentations
All video presentations discuss certain investment products and/or securities and are being provided for informational purposes only, and should not be considered, and is not, investment, financial planning, tax or legal advice; nor is it a recommendation to buy or sell any securities. Investing in securities involves varying degrees of risk, and there can be no assurance that any specific investment will be profitable or suitable for a particular client’s financial situation or risk tolerance. Past performance is not a guarantee of future returns. Individual performance results will vary. The opinions expressed in the video reflect Sand Hill Global Advisor’s (“SHGA”) or Brenda Vingiello’s (as applicable) views as of the date of the video. Such views are subject to change at any point without notice. Any comments, opinions, or recommendations made by any host or other guest not affiliated with SHGA in this video do not necessarily reflect the views of SHGA, and non-SHGA persons appearing in this video do not fall under the supervisory purview of SHGA. You should not treat any opinion expressed by SHGA or Ms. Vingiello as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of general opinion. Nothing presented herein is or is intended to constitute investment advice, and no investment decision should be made based solely on any information provided on this video. There is a risk of loss from an investment in securities, including the risk of loss of principal. Neither SHGA nor Ms. Vingiello guarantees any specific outcome or profit. Any forward-looking statements or forecasts contained in the video are based on assumptions and actual results may vary from any such statements or forecasts. SHGA or one of its employees may have a position in the securities discussed and may purchase or sell such securities from time to time. Some of the information in this video has been obtained from third party sources. While SHGA believes such third-party information is reliable, SHGA does not guarantee its accuracy, timeliness or completeness. SHGA encourages you to consult with a professional financial advisor prior to making any investment decision.
Other Posts By This Author
- – A New Year’s Toast to the Silicon Valley Entrepreneur
- – How I Learned to Love the Bot
- – Thank You for Your Partnership
- – The Coming Deglobalization
Related Posts