The economy is a massive entity with various components and different forces pushing and pulling on it at all times. Often, these forces are offsetting. For example, if economic growth is strong, then the Federal Reserve is more likely to raise rates which has a dampening effect on economic growth.

Or, the federal government engages in deficit spending to juice the economy which ends up leading to higher inflation and rates thus undermining the economy. Another scenario is when the cycles of different components are not synching. For example, the housing market didn't really bottom and turn around until 2011-2012 which negatively affected the recovery that started in 2009. The housing market has been a positive contributor to growth since 2012 but manufacturing was a negative contributor for most of the 2012 to 2016 period. These situations often lead to lackluster recoveries.

Previous Situations

Occasionally due to unusual situations, these traditional relationships can change and offer big returns to investors. Think about the economic recovery in 2009 when inflation was rising, yet the Fed kept its foot on the accelerator due to the greater need to support the economy and reduce unemployment.

In the spring of 2008, oil was above $120 leading to inflation in the 4 to 5% range. This handcuffed the Fed when it came to loosening monetary policy as the housing bubble was unwinding, leading to an even deeper recession.

Current Situation

The current situation is quite bullish. Nearly, every component of the economy is in expansion mode with no end in sight to the expansion as it's just started. This includes technology, healthcare, housing, government spending, and consumer spending.

The end of every recession brings with it a burst in demand as people put off purchases due to poor economic conditions. This one should be even larger as people put off purchases for health reasons rather than economic ones. Additionally, household balance sheets are in the best shape they've been in decades. This is due to people using stimulus payments to pay off debt and less outlets for spending.

As discussed above, policy tends to be a counterweight in normal times. For instance, if growth is strong and unemployment is low, monetary policy will be hawkish with tighter fiscal policy. Due to the coronavirus and its uneven impact on different people and communities, the Fed has signalled it won't be raising rates for a considerable period of time. The federal government is also continuing to spend more money as it looks to pass an infrastructure package and has pledged to pass another relief bill if conditions don't improve.