The U.S. expansion is over eight years old, and the S&P 500® Index is up almost 300 percent, cumulatively, from the bottom in 2009.¹ This is the second longest bull market in modern history and the third longest economic expansion in records dating back to the 1800s. History would suggest that now is not the time to be complacent. After all, recessions almost always bring bear markets. And so, after such a strong and long run, it’s important for investors to take a step back and think about where we are in the cycle.

Full disclosure: forecasting recessions is very difficult. But we can, and do monitor the risk factors that suggest when an economy is becoming more vulnerable to a major setback. In practice, recession monitoring is usually a blend of two very distinct approaches.

A contrarian approach: macroeconomic imbalances

“Too much of a good thing can be a bad thing.” — William Dudley, 1999

The first method is predicated on an understanding of recessions for what they are—a natural (but very painful) healing process in which the economy clears the imbalances that accumulated during the good growth years. In 2015, Janet Yellen quipped that expansions don’t “die of old age”. That’s technically correct—expansions don’t die of old age—but in our view they do die of something loosely related to the age of the expansion: accumulated imbalances.

Because the Great Financial Crisis was so severe, it has taken a long time for the U.S. economy to get back to normal again. But by many measures we’re already there now. Consider the following: