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Members of D.A. Davidson & Co.

Mid-Cycle Transition No Reason to Sell

"In previous months, we have mentioned the overall reading on the [Recession] dashboard has been among the best in history. This strength has persisted, despite GDP “missing” expectations for the second quarter when the advance release came in at 6.5% vs. consensus of 8.4%. Economic activity in the second  quarter was modestly held back by well understood supply chain issues as well as weaker government spending which tend to be less important considerations for equity investors. Further, supply issues which caused a formidable inventory drawdown and weakness in trade and housing should begin to ease in the second half. Importantly, 6.5% was the best quarter for economic activity in nearly 20 years (since the third quarter of 2003) leaving aside the outlier third quarter of 2020 when the initial reopening occurred. 


While many economic indicators continue to show strength, the current environment likely represents economic and earnings growth as discussed previously. Although some market participants appear to be worried about an impending slowdown, we continue to believe the economy is undergoing a somewhat typical handoff from the early- to mid-cycle. This period often is accompanied by choppier equity markets as investors seek to ascertain the dominant themes of the next expansion. Even though these can only be known with the benefit of hindsight, a double-dip recession is clearly not on the horizon."


(Mid-Cycle Transition No Reason to Sell dated 08/04/2021 by Jeffrey Schulze CFA, Director & Investment Strategist, and Josh Jamner CFA, Vice President & Investment Strategy Analyst, with ClearBridge Investments)


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