In his most recent report, Mr Oliver said shares are currently inexpensive and we are still not seeing the investor euphoria that goes with market tops.
“Since 1950, the average cyclical bull market in Australian shares [has] lasted 48 months with a 126 per cent gain,” he said. “The current bull market has gone for 28 months with a 36 per cent gain.”
However, with global shares up 58 per cent since the height of the eurozone debt crisis of October 2011, and Australian shares up 37 per cent in the same period, there are a number of risk factors that could see a correction, Mr Oliver said.
“We are in the second year of the four-year US presidential cycle and this historically sees below-average returns from shares,” he said.
“This takes its lead from the view that the US president tries to stimulate the economy in year three of his term to help his party’s re-election chances in year four, but winds back the stimulus in years one and two, resulting in below-average returns those years.”
Contradicting this view, the GFC and eurozone crisis impacted the trend, which in turn has caused measures from the US Federal Reserve to affect the market.
“This year will actually see a let-up in the pace of fiscal tightening in the US, and in Europe, which should be a boost for economic growth,” Mr Oliver said.
“Fundamentally, it’s too early to expect a bear market yet.”
In his report, Mr Oliver explained the three stages of a typical cyclical bull market: “Phase one is driven by an unwinding of very cheap valuations helped by very easy monetary conditions but with receding downside economic risks, causing some investors to snap up undervalued shares.
“Phase two is driven by strengthening profits, the part of the cycle where optimism starts to creep in.
“Phase three sees euphoria, with investors not only saying they are bullish but backing it up by pushing cash flows into shares.”
We are currently in phase two, Mr Oliver said.
“Rising global growth and a pick-up in Australian growth through the year should drive stronger profits, and optimism regarding the global economic outlook and share markets has clearly returned,” he said.
