Wednesday , 23 May 2018


Is the Equity Bull Market Over?

The decline in the equity markets since the end of January has many asking if the bull market is over – and the short answer is no there is still room for the  market to run. That being said, there are a number of concerns that could keep the markets on edge and, were they to materialize, the result could be a  correction similar to those that occurred in 2011-12 (-19.4%) and 2016 (-14.2%).

By Chantelle Schieven, Senior Analyst & co-editor of munKNEE.com

From the bottom set in March 2009 until the recent peak in January 2018 the S&P 500 index increased an impressive 324.7%; an annual rate of 17.7%. Long run bull markets are not unusual, but what has made this one so is that from the end of June 2016 until the end of January 2018 there were no declines of 5% or greater.

The decline in the equity markets since the end of January – the S&P 500 declined 10.2% from January 26 to February 8 and has been trading mostly sideways since, – begs the question: “Is this bull market over?” and the short answer is no there is still room for the market to run. Why? Because:

  • the probability of a US recession is low; the Federal Reserve of New York’s recession model puts the probability of a US recession in the next 12-months at only 10.8%
  • interest rates remain below historical norms and short-term interest rates are expected to only increase gradually

But,

  • heightened geopolitical concerns,
  • higher inflation concerns,
  • and increases in interest rate faster than expected

could keep the markets on edge and this decline could be similar to the corrections in 2011-12 and 2016.

  • The S&P 500 declined from April 29, 2011 to October 3, 2011; a decline of 19.4%. It wasn’t until February 2012 that the S&P 500 returned to its pre-correction level.
  • The S&P 500 declined again, from May 21, 2015 to February 11, 2016; a decline of 14.2% and didn’t return to the same pre-drop level until July 2016.

In summary, pay close attention to the abovementioned concerns because were any one of them to materialize the equity markets could decline further.

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