“There have been a lot of terrible things in my life, some of which have actually happened.”
- Mark Twain

There’s great wisdom in Twain’s words, particularly for my fellow worrywarts who spend their time ruminating over what might be.

We are told that markets climb a wall of worry. Bull markets don’t typically end with skepticism but rather with everyone’s family members making significant gains in the market. Fortunately, there was little boasting at my Thanksgiving dinner. I’ll report back after next week’s holiday dinners.

Investors continue to confuse one-off political events and short-term bursts of volatility as signals that the end of this cycle is nigh. And yet whether it has been concerns over Grexit, or the fiscal cliff, or the heartbreaking events in Syria, or the slight Chinese devaluation of the yuan, or Brexit, or the U.S. elections, volatility has come and gone and the bull market has continued its advance (Exhibit 1).

This cycle will end as all cycles end—with either a major policy mistake somewhere in the world (i.e., the Federal Reserve, or “the Fed”, raising interest rates too rapidly) or with a significant deterioration of economic activity in one of the major economies or economic regions of the world. By then, the euphoria for equities will be real, and holiday dinners will be replete with tales of great stock picking by our novice relatives. For now, leading indicators of the economy are improving, policy is generally accommodative globally (the Fed’s December rate hike notwithstanding) and sentiment, though improved since the election, is still not euphoric.

Exhibit 1: One-off Events Have Triggered Volatility but Not Ended the Cycle

Year End, Markets, Volatility

Mark Twain also said, “whenever you find yourself on the side of the majority, it is time to pause and reflect.” Since 2009, $700 billion has been withdrawn from equities, and more than $1 trillion has been poured into bonds. On that basis alone, we can conclude that this cycle, despite inevitable bouts of volatility, still has room to run.

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