This secular bull market—the least loved in memory—is now more than 100 months old, and up 265% from its bottom on March 9, 2009.1 It is also the second longest bull market on record (after the 1990s’ dot-com boom) and fourth largest in terms of market advance.
We are optimistic that this cycle will ultimately be the longest on record, though we do not believe our view is Pollyannaish. We will continue looking out for telltale signs indicating the end of the current cycle, even as we believe that none of them are forthcoming:
- U.S. and/or European inflation increases more rapidly: If inflation picks up meaningfully in the developed world and tighter policy commences, then the cycle will likely be curtailed.
- High-yield credit spreads widen: The bond market is usually a good indicator of the end of a cycle. Cycles end with the yield curve inverting and high-yield credit spreads blowing out. An equity market sell-off typically follows soon thereafter.
- The 10-Year U.S. Treasury rate falls and the yield curve flattens: The 10-Year Treasury rate will reflect the real growth and inflation expectations of bond market participants. A flattening yield curve driven by the decline of long-term rates would be an ominous sign for the U.S. and global economy.
- The U.S. dollar strengthens versus emerging market currencies: A flight of capital from emerging markets to the United States would slow growth among the former—which are major drivers of economic activity—and potentially cause another earnings recession for U.S. multinational companies.
For a more detailed look at the end-of-market signals on which to keep an eye, refer to our paper titled “How It Ends.”
- ^Source: Bloomberg, as of 7/31/17.
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