Is the bull market winding down? Most people seem to think that is inevitable after such a long run. However, there are some contending the bull market could go on for years. The argument comes from Ciovacco Capital Management, which contends that by analyzing historical charts, the stock market looks poised for another breakout out, especially considering the Brexit deal, the US-China “phase one deal”, and the generally buoyant mood on Wall Street. Ciovacco says worries about China have been the biggest drag on performance, but that a lot of progress has been made, and one more piece of good news, such as the delay of December tariffs, could spark a big run by igniting “animal spirits”.
FINSUM: This is obviously highly speculative. However, it is a decent 30,000 foot view of where the market stands right now.
It has been a rough several month stretch for stocks and no one seems to have a clear view on where things are headed. All the same fears dog the market now just as they have all year, but at the same time, there seems to be some bullish indicators. Economic signals have been much better recently, which could support a longer bull market. Additionally, so much bearish sentiment has built up that it seems like the market is poised for a big move higher. Finally, the sideways action of the market seems to point to another move higher. Some think the sideways move over the last several months means that this cycle has seen its peak. On the contrary, though, usually late stage bull markets move higher right before an economic downturn.
FINSUM: The market was flat for over a year right in the middle of the bull market and then took a huge move higher. Same situation?
In what we see as an encouraging sign with some good logic behind it, Credit Suisse has announced that it is going overweight equities despite the cautiousness of all the other big banks. Specifically, Credit Suisse’s wealth management division is going overweight stocks as it sees increased prospects of a US-China trade deal, diminishing political risk in the UK and Europe, and additional stimulus efforts by global central banks. Taken as a combined force, these are quite bullish considerations, says the bank. Credit Suisse had previously been neutral on equities, but the announcement came from the banks’ global Chief Investment Officer.
FINSUM: We are starting to agree with Credit Suisse on the bullishness. The whole market and economy seem to be re-entering the post-Crisis goldilocks phase where the economy was just weak enough for central banks to stimulate (boosting asset prices, but not weak enough to cause any real problems.
Name the two main factors which drove this decade-long bull market. Ours would be the Fed’s easy policy, and huge levels of corporate buybacks. Well, that second one, which has inarguably been at least a core pillar of the bull run, is ending. Companies are pulling away from share buybacks, lessening one of the big price drivers for the market. Buybacks have slipped alongside the market’s trouble, as companies are no longer stepping in to buy shares, sending buybacks to their lowest level in 18 months.
FINSUM: Do you remember the earnings recession that occurred for a few years during this bull market? Buybacks are what kept prices afloat.
President Trump threw out an idea for a tax cut this week, then immediately backtracked by calling it unnecessary. The idea, however, appears sound. Trump proposed a payroll tax cut that would primarily help middle and lower class workers (in addition to a capital gains tax cut via indexing to inflation). That would make a lot of sense right now, as it would increase the spending power of the masses, increasing consumption and inflation, and lowering un-utilized manufacturing capacity.
FINSUM: We really like this idea of a payroll tax cut because it would help reverse some of the adverse affects of the wealth inequality that has built up since the Crisis. The more capital is concentrated in a small pool the less of it gets spent (i.e. a single person can only spend so much), which slows the economy. If you increase the spending power of the majority of Americans a lot more will get spent, boosting the economy.