Walls Street is celebrating its longest bull run ever. The S&P 500’s longest rally in history, topping close to a decade-long Wall Street boom, has accelerated over this year.
During this time, the S&P 500 share index avoided a fall of 20 per cent or more, which is the benchmark often used to grant the status as the longest bull market in American history.
The previous record bull run began in 1990, lasting nearly a decade until the bursting of the dotcom bubble at the turn of the millennium.
Yet as Wall Street celebrates reaching this landmark, I don’t believe the bull run still has a long way to go. Taking into account robust U.S. economic growth, strong company earnings and a showing of caution from the Federal Reserve, this is an ideal scenario for investors.
This favorable combination was seen in the upward revision of economic growth to 4.2 per cent, the Commerce Department’s second GDP estimate for quarter two, edged up from the 4.1 per cent pace of expansion reported in July and the quickest rate since Q3 2014.
The upward revision followed Fed chair Jay Powell’s assured prudence over the pace of rate hikes in 2019 during his address at this year’s gathering of central bankers in Jackson Hole, Wyoming.
That said, he bolstered expectations for another rate hike in September and maintained the chances for another in December well above 60 per cent, saying the “gradual process of normalization remains appropriate.”
In addition, corporate earnings growth overtaking share price growth has resulted in global stock and credit market valuations becoming more appealing than previously seen in 2018.
However, even though Wall Street’s outlook over the next few months seems favorable, we may see a steep change in investor sentiment towards the U.S. stock market going into next year.
We can expect the more cautious investor to begin to accumulate cash positions and make the most of any sell-off.
Indeed, the Federal Reserve’s caution is somewhat vindicated. Although GDP increased at a 4.2 per cent annualized rate, many economists are of the opinion that this growth is predominantly down to short-term boosts to the economy, such as robust exports and tax cuts.
In addition, the gross domestic income (GDI) increased at a rate of 1.8 per cent in quarter two, and when coupled with the GDP average to determine the gross domestic output – deemed a better gauge of economic activity - this increased at a 3.0 per cent rate in the second quarter.
However, despite these figures, the risks remain.
Political risk is a major factor for investors. Whether it concerns trade war fears, North Korea, Iran or the risk of President Donald Trump’s impeachment if the Democrats win control of the Senate in the mid-term Congressional elections in November, the risks are omnipresent.
Nevertheless, to my mind, the most significant risk to investors is that the global liquidity tide is ever so gradually drying up, as central banks around the world bring an end to their quantitative easing policies. Or in the Federal Reserve’s case, put their QE policy in reverse.
Referred to as the ultimate paradox in finance, liquidity is there when you don’t need it and never there when you do.
As it stands now, indications are that liquidity across the globe is becoming scarce, so investors would perhaps be wise to sell stocks or augment their cash allocations.
However, the best safeguard for investors in such unpredictable times is to maintain a sufficiently diversified multi-asset portfolio.
Nigel Green is founder and CEO of deVere Group. One of the world’s largest independent financial advisory organizations, de Vere does business in 100 countries and has more than $12 billion under advisement.
© 2023 Newsmax Finance. All rights reserved.