Business cycle - where are we?

There always needs to be a focus on the simple questions for investors, "Where are we in the business cycle?"The Fidelity Asset Allocation Group provided a recent piece on their views on growth with a stylized picture of the business cycle. Their view is that we are at the mid point of the cycle. This seems to be the consensus view even though this recovery has been in place for almost five years. The Fed thinks that growth is strong enough to cut QE but not so strong as to raise rates for another year. This could argue that we are still in the recovery phase regardless of length of time. The pessimist would argue that we are late in the expansion process given the slowing in the last quarter. 

Whether optimist or pessimist, the real issue for investors is that US economic growth has been below trend which means that growth should not sustain the current stock market. Further increases in prices will have to come through gains in valuation. This could continue in 2014, but it requires a higher level of optimism than what is currently felt by investors.