BCA Research believes there is a possibility of "one last blow-off rally in cyclicals," with the US manufacturing cycle having followed a surprisingly stable pattern for over seven decades.
"History suggests that this cycle tends to last for about 36 months, with a down leg spanning 18 months, followed by an up leg approximately spanning another 18 months," said BCA Research.
Analysts argue that this framework has proved to be a good guide for gauging the outlook for high beta segments of global equity markets, particularly cyclicals and non-US stocks relative to defensives and US stocks, respectively.
The firm notes that manufacturing new orders peaked in June 2021 and then weakened for the subsequent 19 months before bottoming out in early 2023.
"Since then, the global manufacturing cycle has been strengthening, a dynamic that could last for a few more months," adds BCA. "During this interim 'goldilocks' period (when manufacturing activity surprises on the upside while inflation trends lower), non-US stocks as well as cyclicals could stage a near-term blow-off rally."
However, the firm cautioned that its Global Investment Strategy team warns that a recession is likely by early 2025. As a result, "investors with a holding period of 6-to-12 months should opt for a defensive stance," they conclude.