BCA Research believes there is a possibility of a “latest cyclical surge” as the US manufacturing cycle has followed a remarkably stable pattern for more than seven decades.
“History shows that this cycle tends to last about 36 months, with a period of decline lasting 18 months, followed by a period of growth lasting approximately another 18 months,” BCA Research said.
Analysts say the model has proven to be a good guide to assessing the prospects of high-beta segments of global equity markets, especially cyclicals and non-U.S. stocks versus defensive and U.S. stocks, respectively.
The firm notes that new production orders peaked in June 2021, then declined over the next 19 months before bottoming out in early 2023.
“Since then, the global production cycle has intensified and this momentum may continue for several months,” BCA adds. “During this interim goldilocks period (when manufacturing activity unexpectedly rises and inflation trends lower), non-U.S. stocks as well as cyclicals could stage a short-term rally.”
However, the firm warned that its global investment strategy team warned that a recession was likely by early 2025. As a result, “investors with a holding period of 6 to 12 months should take a defensive position,” they conclude.