The US equity market recently celebrated 9 years of advancement without a bear market (a Bear market is defined as an equity market decline of greater than 20% from its peak).
This 9 year Bull market is closing in on the historical record of 9 years and five and half months. The longest post-war Bull market stretched from 11 October 1990 to 24 March 2000. To break that record the current Bull market will have to continue until the last week of August 2018.
The US equity market experienced a “correction” in February 2018 (a correction is defined as a fall in market value of between 10 and 20%) on inflation and higher interest rate concerns. I wrote about this in this blog and also put into historical perspective here and here.
Bull markets end with a Bear market. Bear markets usually coincide with recession. Very rarely has there been a Bear Equity Market without recession. Nevertheless, there have been bear markets without a recession.
Fortunately the global economy has good momentum and recession does not look imminent. Most economic forecasts are for economic growth throughout 2018 and into 2019.
Albeit, the current Bull market does face some risks. Key amongst those risks are:
- Earnings disappointment in 2019. Earnings momentum is vulnerable this late in the economic cycle
- Economic data disappoints – global equity markets are priced for continuation of the current “Goldilocks” economic environment, not too hot and not too cold.
- Inflation data surprises on the upside
- Policy mistake by a Central Bank given the extraordinary policy positions over the last 10 years of very low interest rates and Quantitative Easing, e.g. US Reserve Bank needs to raise short term interest rates more quickly than currently anticipated
- Longer term interest rates rise much higher than currently expected
Therefore, lots to consider as the year progresses.
I enjoyed this quote from Howard Marks “there are two things I would never say (since they require far more certainty than I consider attainable): “get out” and “it’s time.” It’s rare for the market pendulum to reach such an extreme that views can properly be black-or-white. Most markets are far too uncertain and nuanced to permit such unequivocal, sweeping statements.”
Well worth thinking about when making portfolio investment decisions.
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