Predicting economic cycles is difficult. This cycle has been especially tough because of central bank interventionism, the fact that the recession was worse than any other one since the Great Depression, and that the recovery has been weak. All those three points mean the recovery will be longer than usual. QE and low interest rates helped stimulate the economy, pushing stocks up. The fact that the recession was bad implied the recovery would be strong. That hasn’t happened, but instead it has been long as this is one of the longest bull markets ever. The lower the growth, the less risk for the economy producing high inflation causing the Fed to hike rates and plunge the economy into a recession.

The chart below attempts to do a cyclical analysis of the economy. As you can see, the blue is the downturn right before the recession, the green is the repair during the recession which is the deleveraging, the red line is the economic recovery, and the yellow is the expansion where the credit market loosens and multiples expand. The chart shows during the mid-cycle slowdown, there was a short time where it looked like the economy was in a downturn, but that quickly ended. There were two larger false signals in the 1990s recovery which could have caused investors to miss out on the gains. The two key changes to follow are going from yellow to blue and going from green to red because they represent the changes in the cycle you want to time. This chart indicates the economy is not near a recession which isn’t surprising based on the economic data we’ve looked at.

The title of the chart above shows we are late in the cycle even though it shows the economy is in expansion mode. I think Morgan Stanley (MS) wants to say the economy is late in the cycle because of how old the recovery is. I think the economy was late-cycle in 2016, but the facts have changed with the improved metrics. Many prognosticators said the 2016 economic recovery was in the 9th inning (baseball game with 9 innings). Their cop out was this game can go to extra innings. It certainly has as the growth has re-accelerated.