30 August 2018

Ever Onwards, Ever Upwards?

The summer doldrums are well and truly upon us. Company news is thin on the ground and, as for economic data, it seems all the statistics compilers are on holiday too.

True, central banks are in the news, with Donald Trump criticising the Federal Reserve for its tightening policy. Fed chairman, Jerome Powell, is due to speak at the Jackson Hole symposium shortly, but he really is in something of a fix.

Many analysts are forecasting a further rise in US interest rates next month, which will bring the total increases to six since President Trump took office. If the rise is postponed, he could be accused of bowing to the President’s intervention – particularly as all the economic indicators appear to support further tightening. Yet developing countries are suffering under US policy, so a pause would be welcome in some quarters.

Indeed, unlike the seemingly unstoppable rise in the US market, emerging market stock indices are in bear territory, reflecting the concerns over these countries access to dollar-denominated debt. The S&P 500 Share Index is trading around last January’s all-time high, which makes the bull market that started in the wake of the financial collapse which started nearly ten years ago not only one of the longest since the Second World War, but also one of the most rewarding.

According to VTB Capital, there have been 13 cycles that have satisfied bull market criteria since 1946. The average duration of the up cycle has been around 1650 days and the average increase in value a little over 150%. From its low point in March 2009 until the peak in January this year, this bull market has lasted for just short of 3250 days and delivered a rise of 325%.

A new peak for the S&P 500 will mean this bull market will have lasted for well over double the average duration and generated more than twice the average uplift. There are those who maintain this is already the longest bull market on record, but that depends on how you interpret the statistics. On this basis it does mean we have something to be excited about this summer. Unfortunately, in politics, as in investment, nothing is ever as straightforward as you might like.

The news that Donald Trump’s lawyer has pleaded guilty to breaking election funding law at the direction of “the candidate” throws into question the President’s future. The dollar, which has staged a remarkable recovery under the new president, had already started to wobble because of the apparent spat between Trump and the Fed Chairman. This added uncertainty will not help matters. As to whether the contagion spreads to the stock market, time, will tell, though I daresay the outcome of this upset might play a part.

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