The US economy is only a couple of months short of the longest bull run in history – and investment experts are starting to stress over what will happen next.
The previous longest run was 106 months between 1961 and 1969.
If the economy continues to perform during the second quarter of 2019, this peak will be equalled and then passed.
And experts are concerned about entering uncharted economic waters.
At investment house Schroders, global head of multi-asset investments Johanna Kyrklund revealed she had shifted investment strategy down by increasing diversification ahead of the record breaking run.
No signs of a slowdown
She explained she is looking for early warning signs of a slowdown.
Kyrklund has also watched four key indicators and issued an update on how they were going so far in 2018:
- Cyclical models continue to point to the ‘expansion’ phase, which is typically still positive for markets
- Although the US Federal Reserve continues to raise rates, it has not surprised investors. The US 10-year yield remains below 3% which is for the sustainability of US equity valuations. Despite inflation measures rising more recently, they remain in line with forecasts, therefore lowering the risks that the Fed is forced to accelerate their hiking cycle in the near-term. For now, the risk of tightening liquidity too quickly is not evident.
- The shape of the US yield curve was stable over the last quarter and does not point at recession
- The US dollar has remained weak and is supporting global liquidity and emerging markets
Trade wars
“Trade wars have been the main surprise of 2018. The topic has taken centre stage with the US announcing plans to impose tariffs of up to 25% on $60 billion of Chinese exports. We see this as part of a bargaining strategy on the part of the US administration, which has been quick to grant exemptions from its earlier steel tariffs and has been wary of putting tariffs on goods which the US consumer would notice, like the iPhone,” said Kyrklund.
“These moves suggest that trade wars are not the end game here. Instead, it is likely to be a deal with China that can be held up as a victory ahead of the US mid-term elections in November.”
