The US investment clock: does anyone have the time, please?

Tom Traill - 17 January 2018

Measured against the accuracy of an atomic clock, timekeeping in the investment world is slack. Forget milliseconds; it’s hard enough getting the hour right. In the absence of a reliable time piece, we have a choice between precedent and prediction. A friend, who is an Investment Director, was recently asked to give an overview of the current state of the US economy and financial markets. She began by showing that the annual growth rate of real GDP has recovered from its weakness 18 months ago, and is now back to the same pace as prior to the soft patch. She went on to highlight that unemployment has been falling almost linearly for the 8 years since it peaked shortly after the financial crisis, and is currently around 4 per cent - probably at or below full employment. Further slides confirmed that consumer sentiment has been rising sharply and is approaching 10-year highs, suggesting that there is little that fazes the public on the near horizon, and that the US Dollar has begun to cede a proportion of its former strength.

Looking at monetary policy, the charts acknowledged that it is about eight years since the depths of the last severe downturn – and after a period of several years of relative stability, the Fed has begun an interest rate tightening cycle. Treasury bond yields had picked up from recent record lows, but had not yet rebounded much. The yield curve slope between 2 and 10 year bonds had dropped from over 2.5pp seven years ago and was approaching zero at the turn of the year, but the Investment Director proffered that this is a typical development in the context of the Fed raising interest rates and the recent bout of low inflation.

Her presentation concluded with some overviews of equity market behaviour, tracking the impressive ascent of US stocks over recent months, with particularly strong contributions from a core of technology-focused companies, such as Amazon. She articulated concerns over the rapid gains in valuations, but argued that if these companies represented a new paradigm then perhaps they may not be overvalued. She rounded off with an anecdote about a company that changed its name to embrace the technology-du-jour and experienced a surge in the value of its shares.

Except, the Investment Director is fictional. These views are widespread, and conform to the data – but the same description could have been used word-for-word 18 years ago, in the year 2000. There are currently some remarkable parallels with the first weeks of the new millennium – a number of charts for both then and now are shown below. Can you figure which is which?

Figure 1

Data source: FRED, St Louis Federal Reserve

Figure 2


Data source: FRED, St Louis Federal Reserve

Figure 3


Data source: FRED, St Louis Federal Reserve

Figure 4


Data source: Bank of England

Figure 5


Data source: FRED, St Louis Federal Reserve

Figure 6


Data source: Thomson Reuters Eikon

Figure 7


Data source: Thomson Reuters Eikon

Figure 8


Data source: FRED, St Louis Federal Reserve

Figure 9


Data source: Thomson Reuters Eikon

Figure 10


Data source: FRED, St Louis Federal Reserve


[A = 2017/2018, Z = 1999/2000]



Share on LinkedIn:

Get in Touch

Your information will only be used to contact you about this enquiry, it will not be passed on to any third parties and will be stored in line with GDPR. You will not be added to an email marketing list.

Thank you for getting in touch.

We will respond to your enquiry as soon as we can.