An economist shares his view on today’s prolonged U.S. bull market and the conditions that could bring about its conclusion.
Matt Miller: Hello. I’m Matt Miller, senior vice president with American Funds.
Welcome to our Midyear Outlook. I’m here with three distinguished investment professionals who will help shed light on global market conditions as we approach the halfway point of 2015.
Darrell Spence is an economist with our Capital Strategy Research Group. Gerald Du Manoir is an equity portfolio manager. And finally Wesley Phoa is a fixed-income portfolio manager. All three are based here in Los Angeles.
Welcome, gentlemen. A lot of ground to cover. Darrell, let me start with you. There is a lot of talk out there that we’ve been in one of the longest bull markets in history. I think people have on their minds, “How long can this go on?”
Darrell Spence: Well, I think there is a temptation when something has been going on for a long period of time to assume that we’re closer to the end than the beginning, and sometimes there is some truth in that. But I’ve also never been a really big fan of using time and distance as a predictor of either economies or the stock market. Rather, what’s going to determine where the stock market goes from here and how long it goes on for is the fundamentals. That would be earnings growth; it would be valuation; it’ll be geopolitical events.
Historically, when you’ve looked back at what has ended bull markets in the past, it’s been a fairly large and negative change in the fundamentals. Either inflation has picked up dramatically [or] interest rates have risen dramatically. At least with those two, we don’t necessarily see that occurring over the next 12 to 18 months.
Some of the past market declines have also been caused by geopolitical events. Those are much harder to predict. However, though, as you look back and you look at the market declines that have been caused by those events, if they weren’t necessarily caused by a deterioration in the other fundamentals — primarily the economic fundamentals — they’ve tended to be pretty short-lived.
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