By: Rob Wertheimer
Looking at relative performance of cyclical industrials can be startling. There’s a chart inside this note, and the simple takeaway is a tale of two decades. The most recent ten+ years have been a string of steady under performance, punctuated by a couple of mini upcycles. The ten years before that saw cyclicals do very well, while tech underperformed. Not just two-year cyclical upswings where investors were quick to fade multiples, but sustained revenue growth and higher valuations. The fact that machinery actually outperformed feels like the startling part; anyone investing primarily over the past 10-15 years hasn’t seen any real cyclical traction. Recent history may be a dangerous guide though: we see two meaningful reasons for cyclical goods to perform more like the early 2000s again now.