Consumers are still spending but the rising cost of fuel, lodging, food and medical care loom as speed bumps in third quarter GDP. The nation’s economy depends on consumer spending—about 75% of GDP is derived from meeting consumers’ needs.

Profits are up for many U.S. corporations, but these companies are not spending to improve their infrastructures. Evidently, CEOs don’t expect this business cycle to be long-lived. Proof for this statement can be seen in two areas—MZM (money to zero maturity) which is hovering around zero and non-financial S&P 500 firms, which will amass an estimated $680 billion in cash holdings this year, up from $634 billion last year.

When you look at the interest rate yield curve (between short- and long-term rates), X-factored for dollar value and inflation, the curve is turning flat. The flatness of the yield curve will pressure the economy as interest rates, inflation and dollar value rise. The consumer will slow spending (rising interest rates) and inflation-hedged investments will start to lose value (stronger dollar value). This could spell recession.

But, there is another scenario. The Federal Reserve is trying to lower inflation-hedged values, which should allow the stock market to benefit. If this happens, the best bet for the rest of the business cycle will be stocks that money flow identifies with the potential to profit. STAY TUNED!