We’re 60 months into the current U.S. economic expansion, which compares to a historical median of around 37 months.
However, duration alone is no reason to believe that we’re doomed for recession.
Furthermore, there have been numerous expansions recently that have actually lasted much longer.
KKR’s Henry McVey notes that the previous three expansion have been much longer, averaging 95 months.
“Put another way, we still see more running room in terms of the duration of this economic expansion, even if it is running at a painfully slow pace versus history,” said McVey. “At the moment, our base forecast is unchanged: The current U.S. recovery will extend through 2017, which would be about in line with the past three economic cycles.”
KKR’s Mid-Year Outlook
McVey and his team included this in KKR’s new mid-year outlook, in which they note four major macroeconomic trends that they consider to be the major factors propelling returns across global capital markets.
First, they write that they continue to see “a lot of reasonably valued mid and large-cap stocks with excess cash balances and low leverage” in developed equity markets. The institute considers this “constructive” for private and public equity investments. Additionally, this environment suggests that corporate M&A activity will continue to be strong.
Next, the firm writes that the sizeable illiquidity premium created by increased regulation through the banking system “remains compelling”. Furthermore, their thinking has changed. Now, Europe is more appealing to them than the United States on the margin.
Presently, companies in emerging markets need to recaptilalize or restructure their balance sheets, which is happening as the cost of capital in those same emerging market countries is going up. Both credit and equity investors “should be rewarded” by these two things happening simultaneously — especially in countries where there is a new government or central bank leadership.
Finally, they write that many central banks “still remain committed” to keeping nominal interest rates below nominal GDP. As a result, they suggest that it makes sense to own real assets that can deliver yield, growth, and inflation.
Read the whole report at KKR.com.