Has The Current Market Cycle Peaked? Morgan Stanley Finds 'Unsynchronised' Data Tough To Read

A new report out this week by Morgan Stanley analyst Andrew Sheets focuses on where the U.S. finds itself in the current market cycle. Although the general data indicates that the U.S. economy is in the middle of the expansion phase, Sheets points out that global markets currently appear to be out of synch in ways they haven’t been in the past.

Regional disparity
Morgan Stanley uses its “Cycle Indicator” to determine which stage of a market cycle a particular economy is in at any given time. The Cycle Indicator incorporates the macro environment, credit swings and corporate aggression to score the economy and determine if it is in downturn phase, repair phase, recovery phase or expansion phase.
The U.S. economy currently appears to be in mid-expansion phase.


However, the Cycle Indicator also shows that Europe remains in late recovery stage.


Japan, on the other hand, appears to be teetering on the brink of downturn phase after a long period of lackluster expansion.


Sub-components
In addition to the regional differences, Sheets points out that many of the sub-components of the cycle models are also currently unsynchronized. For example, the U.S. yield curve is not showing its typical behavior at this point in the cycle. 

 

“Rates and the curve have not tended to rise and steepen this ‘late’ in the cycle – we are in uncharted territory,” Sheets explains.
 

Are we there yet?
With the stock market sitting at all-time highs, many investors are worried that the U.S. may soon be reaching the peak in this economic cycle. According to Sheets, the U.S. has yet to reach the extremes associated with a market peak in terms of the macro environment, credit cycle and corporate aggression.

Morgan Stanley believes that these extremes must first be reached before the economy takes a downward turn.