Chart 1: S&P 500 Futures - Monthly
SHOULD YOU CELEBRATE OR FADE THE LONGEST BULL MARKET IN HISTORY? The latest geopolitical worries, including global trade tensions, Brexit uncertainties, the political and economic upheavals in Turkey, a less steep yield curve and inflation concerns will probably only negatively affect stock index futures for a short time. The U.S. economy and the stock index futures market rally have plenty of fuel left in the tank. While this bull market and economic recovery may very well be old, the still relatively low global interest rate environment suggests U.S. equity markets have plenty of upside both in duration and in price. We should celebrate and not fade the longest bull market on record.
Source: QTS
Well before the geopolitical issues de jour, the bull market was able to shake off a variety of “insurmountable problems,” including the euro zone debt crisis, which rocked Greece, Ireland, Portugal and Spain. In 2011, the credit rating of the U.S. was downgraded and in 2014 oil prices plummeted. From trade wars, to inflation, to a less steep yield curve, many headlines currently continue to cast doubt on the sustainability of this economic cycle and bull market. Through it all, the markets have dipped, but have not fallen 20%.
The bears on U.S. equity markets cited several reasons why stock index futures shouldn’t have advanced this high and why they cannot go any higher. They refer to the fact that debt levels have been rising in the U.S. and in China, the world’s two largest economies, along with the expanding U.S. budget deficit, prompting some commentators to predict an imminent demise of the bull. In addition, analysts that are negative on this market argue that emerging market foreign exchange disruptions will be the catalyst for an imminent bear market.
In spite of the multitude of bearish arguments, this bull market has thrived thanks in part to the still accommodative interest rate policies, hosted by the Federal Reserve and other major central banks. Even though the Federal Open Market Committee has raised its fed funds rate seven times since December 2015, the central bank of the U.S. is still by historical standards very accommodative.
The bulls on this market have cited a variety of other reasons for these historic gains in stock index futures. They range from everything from earnings growth, share buybacks and $1.5 trillion in tax cuts that brought overseas cash flooding back into the U.S.
Higher prices for U.S. stock index futures are likely through this year and well into 2019.
Alan Bush
E:
alan.bush@admis.com T: 001 312 242 7911
THE BEARS ON U.S. EQUITY MARKETS CITED SEVERAL REASONS WHY STOCK INDEX FUTURES SHOULDN’T HAVE ADVANCED THIS HIGH AND WHY THEY CANNOT GO ANY HIGHER.
23 | ADMISI - The Ghost In The Machine | September/October 2018
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