Determining what stage of the cycle we are in with the markets and economy moving so rapidly

Published Sat, Sep 11 20218:32 AM EDT

"It gets late early out here," said the baseball philosopher Yogi Berra, referring to the afternoon outfield shadows in autumn. Investors today might know the feeling observing how quickly the current economic and market cycle has moved beyond the early phase in under 18 months. With the economy and stocks not six quarters past their Covid-crash bottom, the moment is now one of past-peak GDP and earnings growth; labor markets acting more tight than expected; high investor equity allocations; elevated asset valuations and central banks looking for an opening to reverse extraordinary easy-money policies. The baseball analogy is helpful here, even if asking "What inning are we in?" is a cliché. Because baseball games don't run for a set time, crucial "high-leverage" situations can arise at any point, lulls in the action are common and games can go on indefinitely under some circumstances – it captures the open-ended, contingent course of an economic cycle. And sometimes and unexpected rainstorm cuts the game short. What's clear right now is that the first frames of the recovery and bull-market have past swiftly, evident in the stat sheets. While the economy is not close to full employment at a 5.2% unemployment rate (certainly not by the Federal Reserve's newer definition) a wide gap has opened up between the number of jobless Americans and the record tally of open positions. While good news for workers and wage growth, and surely driven by pandemic considerations and restrictions, this shows the job market running tighter than anticipated. There should be a couple of years' worth of brisk job creation left given the unrecovered jobs from the Covid recession, but economists are on alert for structural changes and frictions in the labor market. Investors, meantime, have allowed their commitment to equities to rise toward historic highs, with the S & P 500 more than doubling in 17 months and retail investors shunning bond alternatives. This chart shows assets in all U.S. equity funds, net of cash in those funds, as a percentage of all fund holdings. This heavy stock exposure largely reflects the fact that there was no enduring market downturn, no severe purge of stock holdings, no fearful rethinking of risk appetites, during the mere five weeks in early 2020 in which the S & P fell more than 30% in a flash bear market. Granted,