“Bull markets don’t die of old age” is a piece of trader wisdom trotted out to justify hanging out in stocks in a bid to try and squeeze out the last of any potential gains in a cycle. But as market lore goes, this piece of advice may now be injurious to your financial wealth.
It’s true that buying on any dips as a strategy in recent years has stood investors well. The combination of central bank quantitative easing and low bond yields has forced investors to take on more equity market risk in the hope of improving returns.
The old market trope suggests bull markets instead die of excess - too much hubris, and too much leverage. But there is one more reason: policy mistakes. Whether it is the Federal Reserve lifting rates too quickly or President Donald Trump igniting a trade war spark that turns into a brushfire, policy risk hovers on the edge of investors’ peripheral vision like a bad tempered wasp at a picnic.
There are clearly still arguments in support of equity markets. Namely, strong earnings and a moderation in share prices since the start of the year that has improved the valuation picture.
Nandini Ramakrishnan, global market strategist at JP Morgan, is still positive. “In the second half of the year, we expect some reacceleration of growth outside the US as … employment growth and cheap credit… reassert themselves,” she says. “We expect modest gains in equity prices by year-end as government bond price drift lower.” The team at JP Morgan still sees improvements in productivity emerging in the US that will underpin markets there.
But, the escalator of fear around a tit-for-tat trade war and rising interest rates is beginning to unnerve investors.
Ralph Jainz, who manages money at Centricus Asset Management, says: “Central bank support is starting to fade, even as the global demand environment is deteriorating.” He thinks investors need to start positioning themselves for a market that is rolling over: “We would expect a full-blown trade war in European equities to start in in the first half of 2019 at the latest.”
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As for the argument that bull markets die in euphoria, Mr Jainz said it was a question of looking in the right place: tech stocks. “Technology is undoubtedly in a bubble, and overheating phase. That is clear from looking at the gap between growth (eg tech) stocks and value (eg banks) which is at its highest since the first quarter of 2000.”
For some, the markets are already involved in a long drawn-out topping process.
Stewart Richardson, chief investment officer at RMG Investment Management, says this growth cycle is getting old. “This cycle is similar to other cycles, in that previous loose policies encouraged new debt that will eventually prove not to be serviceable and will have to be written down,” he says. “The build-up in corporate debt in particular … is of concern.”
While Mr Richardson acknowledges there may be further upside for equities because of the strength of the US economy, markets are living on borrowed time. “Equity markets have struggled to make progress in recent months. What’s important to try and understand (assuming we are late cycle), is that we are dealing now with a sequence of outcomes that will lead to increasingly less good and then bad outcomes,” he says.
The bears have not had an easy time in this phase of the markets. February’s volatility melted away, once again encouraging the bulls to increase their weightings in risk assets.
But potential triggers for renewed weakness abound: debt levels, margin pressures, valuations, interest rates etc, choose your excuse. But ultimately, confidence is key, and investor and business confidence appears increasingly dented by the risk of mistakes on trade and monetary policy. And that explains why the bears have woken up again.
Geoff Cutmore is co-anchor of Squawk Box, CNBC’s flagship show in Europe
The National and CNBC International are global content sharing partners.
Real estate tokenisation project
Dubai launched the pilot phase of its real estate tokenisation project last month.
The initiative focuses on converting real estate assets into digital tokens recorded on blockchain technology and helps in streamlining the process of buying, selling and investing, the Dubai Land Department said.
Dubai’s real estate tokenisation market is projected to reach Dh60 billion ($16.33 billion) by 2033, representing 7 per cent of the emirate’s total property transactions, according to the DLD.
if you go
The flights Fly Dubai, Air Arabia, Emirates, Etihad, and Royal Jordanian all offer direct, three-and-a-half-hour flights from the UAE to the Jordanian capital Amman. Alternatively, from June Fly Dubai will offer a new direct service from Dubai to Aqaba in the south of the country. See the airlines’ respective sites for varying prices or search on reliable price-comparison site Skyscanner.
The trip
Jamie Lafferty was a guest of the Jordan Tourist Board. For more information on adventure tourism in Jordan see Visit Jordan. A number of new and established tour companies offer the chance to go caving, rock-climbing, canyoning, and mountaineering in Jordan. Prices vary depending on how many activities you want to do and how many days you plan to stay in the country. Among the leaders are Terhaal, who offer a two-day canyoning trip from Dh845 per person. If you really want to push your limits, contact the Stronger Team. For a more trek-focused trip, KE Adventure offers an eight-day trip from Dh5,300 per person.
Skewed figures
In the village of Mevagissey in southwest England the housing stock has doubled in the last century while the number of residents is half the historic high. The village's Neighbourhood Development Plan states that 26% of homes are holiday retreats. Prices are high, averaging around £300,000, £50,000 more than the Cornish average of £250,000. The local average wage is £15,458.
Key facilities
- Olympic-size swimming pool with a split bulkhead for multi-use configurations, including water polo and 50m/25m training lanes
- Premier League-standard football pitch
- 400m Olympic running track
- NBA-spec basketball court with auditorium
- 600-seat auditorium
- Spaces for historical and cultural exploration
- An elevated football field that doubles as a helipad
- Specialist robotics and science laboratories
- AR and VR-enabled learning centres
- Disruption Lab and Research Centre for developing entrepreneurial skills
A MINECRAFT MOVIE
Director: Jared Hess
Starring: Jack Black, Jennifer Coolidge, Jason Momoa
Rating: 3/5
The White Lotus: Season three
Creator: Mike White
Starring: Walton Goggins, Jason Isaacs, Natasha Rothwell
Rating: 4.5/5
Formula Middle East Calendar (Formula Regional and Formula 4)
Round 1: January 17-19, Yas Marina Circuit – Abu Dhabi
Round 2: January 22-23, Yas Marina Circuit – Abu Dhabi
Round 3: February 7-9, Dubai Autodrome – Dubai
Round 4: February 14-16, Yas Marina Circuit – Abu Dhabi
Round 5: February 25-27, Jeddah Corniche Circuit – Saudi Arabia
Other acts on the Jazz Garden bill
Sharrie Williams
The American singer is hugely respected in blues circles due to her passionate vocals and songwriting. Born and raised in Michigan, Williams began recording and touring as a teenage gospel singer. Her career took off with the blues band The Wiseguys. Such was the acclaim of their live shows that they toured throughout Europe and in Africa. As a solo artist, Williams has also collaborated with the likes of the late Dizzy Gillespie, Van Morrison and Mavis Staples.
Lin Rountree
An accomplished smooth jazz artist who blends his chilled approach with R‘n’B. Trained at the Duke Ellington School of the Arts in Washington, DC, Rountree formed his own band in 2004. He has also recorded with the likes of Kem, Dwele and Conya Doss. He comes to Dubai on the back of his new single Pass The Groove, from his forthcoming 2018 album Stronger Still, which may follow his five previous solo albums in cracking the top 10 of the US jazz charts.
Anita Williams
Dubai-based singer Anita Williams will open the night with a set of covers and swing, jazz and blues standards that made her an in-demand singer across the emirate. The Irish singer has been performing in Dubai since 2008 at venues such as MusicHall and Voda Bar. Her Jazz Garden appearance is career highlight as she will use the event to perform the original song Big Blue Eyes, the single from her debut solo album, due for release soon.
The biog
Year of birth: 1988
Place of birth: Baghdad
Education: PhD student and co-researcher at Greifswald University, Germany
Hobbies: Ping Pong, swimming, reading
Most F1 world titles
7 — Michael Schumacher (1994, ’95, 2000, ’01 ’02, ’03, ’04)
7 — Lewis Hamilton (2008, ’14,’15, ’17, ’18, ’19, ’20)
5 — Juan Manuel Fangio (1951, ’54, ’55, ’56, ’57)
4 — Alain Prost (1985, ’86, ’89, ’93)
4 — Sebastian Vettel (2010, ’11, ’12, ’13)
Cases of coronavirus in the GCC as of March 15
Saudi Arabia – 103 infected, 0 dead, 1 recovered
UAE – 86 infected, 0 dead, 23 recovered
Bahrain – 210 infected, 0 dead, 44 recovered
Kuwait – 104 infected, 0 dead, 5 recovered
Qatar – 337 infected, 0 dead, 4 recovered
Oman – 19 infected, 0 dead, 9 recovered
