The signs are there for the end of the expansion but they are not very strong

17th March 2017 by Chris Iggo

No-one really seems to have enjoyed the current economic expansion and now, because it has been going on for several years, some are worrying about the end. The typical end of cycle signs are there – rising inflation, higher interest rates, leverage and overvalued financial assets. But, really, they are all quite tepid. The Federal Reserve (Fed) is taking it easy. Europe’s recovery has only just got going. Inflation remains very low in most cases.

The recovery won’t end just because it is old. Moreover, in the US it could be extended by tax cuts and spending.  But there is a nag in the bond markets and that is valuations. That nag becomes a little bit harder to ignore if central banks begin to step away from quantitative easing (QE). Bonds are generally still expensive, but that only matters if the Fed needs to become more aggressive and credit risks start to increase. For the moment, fundamentals are good, confidence is strong and the policy environment is supportive. After years of worrying about everything because of the fear of a repeat of 2008, it is only now that more investors seem to be embracing the good times that we live in. Let’s hope it’s not too late.