The current investment cycle is unlikely to turn bearish soon despite the above-average length of the US bull market, according to AMP Capital.
The expansion in the US began in June 2009 based on data from the US National Bureau of Economic Research, said AMP Capital chief economist Shane Oliver, making it the second longest bull market since World War II.
“With the US cyclical bull market and economic expansion both now long in the tooth, some fear that US shares are vulnerable to another bear market and by implication given the direction setting influence of the US share market, global and Australian shares would be vulnerable too,” he said.
Mr Oliver noted that bull markets typically last 3–5 years before giving way to a bear market, but that the duration “varies depending on how quickly recovery precedes, excess builds up, inflation rises and extremes of overvaluation and investor euphoria appear”.
Markets at present aren’t exhibiting the usual signs that the bull market is coming to an end, such as economic excess, tighter economic conditions or expensive share market valuations, Mr Oliver said.
“Barring some sort of external shock, the cyclical bull market in shares looks like it still has further to go – particularly if global economic growth returns to more normal levels, which in turn will help earnings,” he said.
“With regard to any Trump fiscal stimulus, this analysis suggests there is still a bit of room for it before it causes the US economy to overheat, particularly if the US dollar continues to trend higher, which takes some of the pressure off the Federal Reserve to raise rates.”
Mr Oliver said investors should expect corrections, but that markets “appear to be a long way from the peak in the investment cycle”.
Additionally, Japan and Europe are even less advanced in the cycle and present a number of opportunities to investors, he said.