Decade Long Bull Market May Be Coming To An End

The S+P 500 is down 0.14% YTD.

After a near-decade bull market, investors are starting to deal with the very real possibility that the mature bull market is starting to come to an end.

After the euphoric run-up into the tax cut bill, the markets have suddenly had a reality check, as we are significantly off of the all-time highs. The question that is currently reverberating through the market - what will be the catalyst to lift stocks even further?

Stocks like Facebook, Amazon and others have absolutely crushed their most recent earnings reports, though we are still in the red so far this year, as concerns about rising interest rates and a possible recession (gasp!) linger in the back of the minds of many investors. With uncertainties in the market, many are starting to seek the relative safety of bonds.

A tight labor market and the recent tax cuts have brought a Boogeyman into the equation that has been missing for a decade - inflation. With inflation starting to creep higher, the Federal Reserve needs to increase interest rates, and this is starting to have a chilling effect on the markets. Companies are finding it more expensive to borrow money, and the days of cheap money to finance dividends and buybacks and acquisitions may be coming to an end.

While higher interest rates don't necessarily spell the end of a bull market (look at the late '90s to see where interest rates were at that time), there is no doubt that they are starting to give investors pause. When interest rates were at rock bottom levels, there was no trade that made sense other than piling into equities, as bonds were paying next to nothing and companies were able to borrow money at low rates to fund expansion and reward shareholders. After purring like a kitten for a decade, the market is starting to groan and wheeze under the weight of higher interest rates.

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From a geo-political standpoint, things are fairly calm right now, especially given the recent breakthrough between South and North Korea.

On the other hand, investors are wondering what the positive catalysts for continued gains in the stock market might be. Many stocks are looking very expensive right now, and without any obvious catalysts around the corner, investors are starting to agitate that the time might be right to lighten up on their positions.

In addition, we are nearly a decade removed from the last recession in the United States - the "Great Recession". While the United States has a pro-business President in office, there is such a thing as an economic cycle, and the country is going to have a recession sooner or later.

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The bulls will point to strong earnings, low unemployment and still relatively low interest rates as reasons why the bull market can continue for the foreseeable future.

The bears will point to high valuations, a lack of positive catalysts and a very mature bull market as reasons why there may be a pullback.

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My opinion? There will be continued heightened volatility coupled with a clear lack of direction as the bull market grapples with high valuations. It's a trader's market, though I would probably be hesitant to commit fresh capital at this point.

Filed under: General Knowledge