Loose Monetary Policy
Business and financial market cycles begin and end by Central Bank monetary policy. When economic conditions deteriorate, Central Banks embark on economic stimulative measures.
Stronger Economic Data
The stimulative measures put in place by Central Banks flow through the economy over time which help stabilize growth through increased productivity and employment.
Rising Asset Prices
Improving economic conditions pave the way for higher asset prices as the financial markets quickly reflect the improvement in economic conditions.
Stretched Asset Prices
Financial markets reach a point that fully reflect their intrinsic value. Market participants begin to spur mania investments.
With financial markets fully priced and economic output above trend, we begin to see inflationary pressures become burdensome for producers and consumers.
Tightening Monetary Conditions
The Central Banks engage in tightening monetary measures to prevent any economic asset bubbles and hard landings.
Slowing Economic Data
The tightening of monetary conditions leads to slower economic growth and lower returns on asset prices as the economy and markets reflect the tightening conditions.
Financial markets are acutely sensitive to movements in the global economy. Therefore, our investment process incorporates a deep understanding of economic cycles and their influence on asset prices. Our research and experience have taught us that by having a dynamic assessment of economic conditions, we can more confidently construct investment portfolios that sync with the ever-changing movements of the business cycle. The assessment begins by having a deep understanding of the rates of change in four key variables: interest rates, growth, inflation, and monetary policy. These four key variables strongly influence the directional movements of the business cycle, thus asset prices.