We believe that it is hard to determine precisely whether you are at the end of a Bull run or at the beginning of a Bear cycle. However, one can look at a panoply of macro factors that might help in making a decision one way or the other. It is also possible that the two scenarious balance out and put you in a Neutral Zone.
Factors that favor a continuing of the current Bull Market:
- Continuing of current accomodative global monetary policy
- U.S labor market continues to improve
- U.S. auto sector continues to grow
- U.S. housing affordability still attractive in most markets
- Muted inflation
- U.S. Current Account and Federal Budget deficits continue to shrink
- Renaissance in U.S. energy production and manufacturing
- U.S. corporations sitting on over $2 Trillion in cash
- M&A and IPO activity picking up
- Equity market valuations are reasonable particularly on a relative basis to bonds
- Europe starting to grow its economy
- China growth stabilizing alongwith other emerging markets like India and Brazil
Factors that Bears are making in support of a coming Bear Market:
- Slow job improvement compared to past economic recoveries
- Political and regulatory uncertainty continues hindering global capital investment and employment growth
- End of QE in the U.S. prompting discussion of how equities might crash in a rapidly rising interest rate environment
- High corporate profit margins might not be sustainable
- Momentum investors have driven the valuations for many internet oriented and biotech stocks to very steep levels that might not be sustainable
- U.S. IPOs might be showing signs of excessive speculation
- U.S. equity markets have not had a 10% plus correction in over 30 months vs. a historical average of 18 months
- 2nd quarters are usually the worst on both a price change and frequency of decline basis since WWII for the S&P 500
We are in a neutral zone with a bias towards Equities and Risk Managed asset classes on a relative and absolute return basis.
