The current 10-year economic expansion is nearing the longest in US history. Based on age alone, many economists—roughly 50% of those recently surveyed—believe a recession is on the horizon. We think this conclusion is misguided.
Economic expansions do not end simply due to the passage of time. Our “Most Interesting Chart Right Now” reveals that the longest expansions on record—both current and prior—far exceed 10 years. Australia, for instance, is in the midst of 28 years of uninterrupted growth. While the chart makes clear that time has no bearing on economic health, our research suggests fundamentals do.
One way to assess economic health is to look at financial conditions, or how easy it is to conduct business. Our analysis shows that conditions have improved notably since the turbulent end to 2018. When conditions loosen, as they’ve been doing this year, it typically corresponds to a positive stock market return.
Should the Federal Reserve—and by extension financial conditions—remain accommodative, the economy and markets may only be in the middle innings. We don’t think this possibility is fully appreciated yet.
The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams.