The inventory cycle

By now, you probably get the picture: divide a Kitchin into 2 and you get what is effectively the business cycle, also known as the inventory cycle, because it coincides with the effective restocking and destocking taking place in the economy year after year.

This cycle is the most followed by market observers. The ISM and Ifo surveys as well as the so called PMI data amongst others do track these ebb and flows of industrial activity or how money gets in or out of the real economy.

As a result and because money has to find a home, a weaker economic trend tends to drive money back to financial assets like bonds, while a stronger reading tends to drive real assets like equities or commodities. 

Not surprisingly, the year on year changes of the S&P500 or oil price for example do closely track the ups and downs of the ISM.