S&P 500 forward earnings is highly correlated with the U.S. index of coincident economic indicators. The latter rose to another new record high during August. Previously, I have observed that based on the past five cycles in the CEI, the next recession should start during March 2019. That’s not based on science, but rather on a simple average of the length of the previous expansions once the CEI had rebounded back to its previous cyclical peak. So it’s a benchmark of what could happen based on what happened in the past on average.
In any event, I’ve circled March 2019 as the possible date for the next recession. Given the Fed’s Federal Reserve’s latest decision to do nothing, it’s safe to bet that the next recession won’t be caused by the tightening of monetary policy anytime soon. It could be caused by a severe downturn abroad, I suppose. More likely is that the U.S. will continue to grow fast enough to keep the global economy growing as well, albeit at a pace that is best described as “secular stagnation.”
Source: Ed Yardeni — Ed Yardeni is the president and chief investment strategist of Yardeni Research Inc., a provider of independent investment strategy and economics research for institutional investors.