The joys and pains of investing in a mature business cycle

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Investors fear that a recession cannot be far off

Germany a heretical cult grew up around the figure of Frederick II, a dead emperor. Its adherents believed that the apocalypse was close at hand. “In all countries a hard time sets in,” is how a prophecy from the period begins. “Rapine and arson go hand in hand,” it continues. “Everyone is at everyone else’s throat. Everyone harms everyone else in his person and his belongings. There is nobody but has cause to lament.

These warring impulses set the pattern for late-cycle markets. The general tendency is for prices of risky assets to go up—perhaps by a lot. But recurring fears of recession mean this rising trend will be punctuated by sometimes-violent sell-offs. Yet a feature of late-cycle markets is that recession scares recur. Another is brewing. This one has its origins in the growing breach between America and China over trade. Earlier this month America stepped up its tariffs on Chinese imports. It has now opened a new front in the dispute by requiring American firms wishing to supply Huawei, China’s technology champion, to seek licences. Markets are choppier, though more in Asia than America. Investors seem fairly calm.

 

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