Expansion Playbook
Economic growth is accelerating with rising GDP, falling unemployment, and moderate inflation. This is typically the most favorable environment for risk assets, but vigilance is required as expansions eventually mature and end.
Key Indicators
- GDP growth above trend (>2.5%)
- Unemployment falling or low (<5%)
- Inflation moderate (2-3%)
- Corporate earnings growing
- Fed policy accommodative to neutral
Action Items
Maintain Equity Exposure
Stay invested in equities, particularly growth-oriented sectors that benefit from economic expansion. Don't fight the trend.
Monitor Valuation Extremes
While staying invested, be aware of valuation levels. Extreme valuations during expansion often precede painful corrections.
Favor Cyclical Sectors
Technology, consumer discretionary, industrials, and financials typically outperform during expansions.
Reduce Defensive Holdings
Utilities, consumer staples, and bonds typically underperform during expansions. Trim these positions.
Prepare Exit Strategy
Expansions don't last forever. Identify your exit triggers before you need them.
Asset Allocation Guidance
| Asset | Stance | Rationale |
|---|---|---|
| US Equities | overweight | Earnings growth supports higher prices |
| Growth Stocks | overweight | Low rates and expansion favor growth |
| Cyclicals | overweight | Economic growth benefits cyclical sectors |
| Bonds | underweight | Rising rates and low yields make bonds unattractive |
| Cash | underweight | Opportunity cost of holding cash is high |
| Gold | neutral | Limited appeal during risk-on environment |
Historical Parallels
- 1995-2000: Tech boom expansion
- 2003-2007: Housing-led expansion
- 2010-2019: Post-GFC recovery
- 2021-2022: Post-COVID expansion
DLS Wisdom
"The market can remain irrational longer than you can remain solvent - but it can also remain rational longer than bears expect."
"In an expansion, the biggest risk is not being invested."
"Don't confuse a bull market with genius."
Playbooks based on David Levin Steinberg's investment philosophy and historical analysis
