"I have been recommending a defensive stance in [US] equities since at least February," says David Ader of Informa Financial Intelligence on Bloomberg. "That hasn't worked out so well." Equities ignored Ader and raced to new highs. But was he merely early?
Signs of stress are mounting. For one thing, the S&P 500 index has slipped for two weeks in a row, and the total 2.1% decline marked its worst fortnight since the one before the presidential election last November. Sabre-rattling between the US and North Korea is one problem, but it seems stocks are now "losing their already diminished optimism for the Trump administration", says Ader.
One of its main extremists, Steve Bannon, departed and markets barely bounced; nor did they react when the White House attempted to scotch rumours that National Economic Council Director Gary Cohn would resign. Cohn is one of the main people working on Trump's tax cuts, and is deemed one of the "adults in the room". Small stocks, meanwhile, which would have been the key beneficiaries of tax simplification and deregulation, have gone into reverse.
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The market is also suffering from "bad breadth", says Lu Wang, also on Bloomberg. Fewer and fewer shares have spearheaded recent moves upwards. During the bounce when North Korea-related tension subsided, stocks making new 52-week lows outnumbered those reaching new highs on three consecutive days. This kind of imbalance has pointed to declines in the past.
Investors have also been paying up for growth stocks and ignoring value, adds Justin Lahart in The Wall Street Journal. Late in an economic upswing, profit growth tends to slow and profit margins narrow. So firms still capable of generating impressive growth such as Amazon, Facebook and Apple command a premium. Growth stocks raced ahead of value stocks in the latter stages of the big bull markets that ended in 2000 and 2007, although in the former case the outperformance lasted for the final three years.
Nonetheless, while equity markets may seem tired, and high valuations remain a headwind, it's hard to see why they should suddenly collapse into a bear market. Global growth has actually ticked up. In any case, as Switzerland's Finanz und Wirtschaft points out, central-bank tightening is usually what ends an economic and market upswing, and there is scant sign of it so far. The US is tightening in baby steps, and elsewhere monetary policy is about as loose as it gets. The global rally is long in the tooth, but it looks to have some life in it yet.
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