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History's least loved bull market

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History's least loved bull market.

I recently read an article describing the bull market of the last seven years as 'history's least loved'. It noted that even as markets have risen over the years, headlines have constantly spouted warnings about the 'next big bad' for markets, leaving people feeling pretty anxious.

A Credit Suisse strategy paper similarly noted that after visiting clients in the US, Europe and South Africa they found them to be 'as bearish on equities as we can remember'. They said their clients (who are generally fund managers and professional investors) felt that shares are too expensive and not attractive enough to compensate for the macro, political, earnings and business risks that exist today.

It is indeed hard to know how to feel about these markets. Returns from a number of markets have been pretty good, but there are things happening every day that encourage anxiety. Take low interest rates for instance. While mortgage holders might be happy about them, investors who rely on investment income have every reason to feel anxious when rates remain so low for so long.

We justifiably felt a bit of anxiety following Britain's momentous decision to leave the European Union. But then, within days markets shook off any anxiety and within weeks some markets have delivered virtually a year's worth of return.

One of the reasons investors have been feeling glum or pessimistic is that for the first half of this year we've been constantly reminded of all the things we should feel pessimistic about.

China was going to suffer a hard landing, and that was going to affect the world economy, and particularly those of us who trade with China. But actually, so far so good. Chinese gross domestic product is on track to grow by around 6.7% for the year.

Low and negative interest rates were supposed to cause havoc, but actually while we still scratch our head about negative rates (why would anyone want them?) fixed income investors have simply widened their search and found other investments to give them a decent income.

Company earnings were supposed to struggle to keep up with share valuations, and earnings disappointments were going to cause share prices to tumble from their lofty heights. But actually, earnings have been okay, and lofty share prices don't seem that lofty when interest rates are as low as they are now.

Politics, especially in the US and Europe, were supposed to be a big risk for markets because the 'wrong' outcomes could derail global trade and economic growth. But markets have taken politics in their stride, as we've seen in the last month, and apart from bouts of volatility, politics have largely turned out to be media fodder rather than a significant driver of markets.

There will be plenty of politics in the next four months. Given the closeness of the Trump/Clinton polls, it is likely that a potential Trump win will emerge as the 'biggest bad' that investors have to worry about heading into the end of the year. It will be bad because the effect of a Trump win will be uncertain for markets, and markets hate uncertainty.

It's not uncertainty about economic policy that will worry markets — Trump's intentions have been relatively clearly signalled and they will take some time to implement. Rather, markets will concern themselves with a possible Trump impact on the Federal Reserve's policy stance. There is no doubt share markets have remained strong because of the Fed's interest rate policy — low interest rates make shares attractive. Trump has talked tough saying he intends to 'audit the Fed' but that doesn't mean he will (or can) change their policy approach.

Still, the next four months may turn out to be this year's 'least loved'. Or, the year to date trends may continue, and we may find ourselves worrying for nothing.

 

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