Over the past several months, we have witnessed a significant shift in expectations about the economic cycle. A year ago, many economists and investors expected the global economy to enter a recession driven by sharp rises in interest rates to combat the surge in global inflation. By contrast, at the start of this year, the consensus expectation is more benign — inflation is now slowing, paving the way for a series of interest rate cuts and a soft economic landing.
Financial markets tend to anticipate changes in the cycle before they materialise. In the first part of 2022, for example, rising interest rates and fears of recession pushed global equity prices down. By contrast, since late October 2023 global equity prices have surged by nearly 20 per cent as investors started to reflect the improved macroeconomic environment. In this way, cycles matter a great deal for investors.