BCA Research believes there is potential for a “recent surge in cyclical stocks,” with the US manufacturing cycle following a surprisingly stable pattern for more than seven decades.
“History suggests that this cycle tends to last for approximately 36 months, with the lower leg extending for 18 months, followed by the upper leg for approximately another 18 months,” BCA Research said.
Analysts believe that this framework has proven to be a good guide to measuring the expectations of high beta sectors of global stock markets, especially cyclical stocks and non-US stocks relative to defensive stocks and US stocks, respectively.
The company notes that new manufacturing orders peaked in June 2021 and then weakened over the subsequent 19 months before bottoming out in early 2023.
“Since then, the global manufacturing cycle has strengthened, a dynamic that could continue for a few more months,” BCA adds. “During this interim period (when manufacturing activity surprises on the upside while inflation trends decline), non-U.S. stocks as well as cyclical stocks can see a rapid near-term rally.”
However, the company warned that its global investment strategy team is warning of the possibility of a recession by early 2025. As a result, “investors with a holding period of 6 to 12 months should choose a defensive stance,” they concluded.
