As for the argument that bull markets die in euphoria, 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 (e.g. tech) stocks and value (e.g. banks) which is at its highest since Q1 2000.”
For some, the markets are already involved in a long drawn-out topping process.
Stewart Richardson, CIO at RMG Investment Management, said 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 said. “The build-up in corporate debt in particular… is of concern.”
While Richardson acknowledged there may be further upside for equities because of the strength of the U.S. 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.”
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.
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