Tag: bull run

Since March 9, 2009, the S&P 500 is on an upwards trend. The bull run is now 9 years old, the second-longest in recent US financial history.

Many Financial Analysts and Economists believe, easy money chasing after better yield plays an important part in popping up the stock market.

Following the global financial crisis of 2007-08, the U.S. central bank, the Federal Reserve, implemented several rounds of quantitative easing QE, resulting in near zero interest rate for US dollar deposits in banks. For pension funds, mutual trusts and general public alike, there are not many investment vehicles that could generate dividend incomes better than what could have reasonably received from stock investments.  The main beneficiary is the US stock market.

In January 2009, the bitcoin network came into existence with the release of the first open source bitcoin client and the issuance of the first bitcoins.

Since then, it grew from strength to strength, achieving its highest USD conversion milestone of above 6,000 dollars in October 2017.  On 23rd October, the value of the world’s most popular cryptocurrency by market capitalization just reached a new high  of $6,003.81 according to CoinDesk. This means that year-to-date, the coin has gone up in value over 500%.

Ladislav Kristoufek’s research on Bitcoin price study “What Are the Main Drivers of the Bitcoin Price? Evidence from Wavelet Coherence” concluded that overall, the Bitcoin forms a unique asset possessing properties of both a standard financial asset and a speculative one.

In the forty year period from 1969-2009, the S&P 500 (NYSEARCA:SPY) produced a 9.85% annualized total return, including reinvested dividends. The MSCI World ex-USA Index (NASDAQ:ACWX) returned 9.53%, lagging the U.S. economy by just 32bp per year.

Since the beginning of 2010 through April 2017, the U.S. has produced a 13.3% annualized return while the rest of the world has produced just a 4.7% return.

The U.S. has outpaced the returns of the rest of the world faster than at any point in a nearly 50 year history of global equity markets.

Is there a coincidence that both bull runs (of  #S&P500 and #Bitcoin) have happened around the same time?

Could the assessment of S&P 500 possible bear gives some indication of possible bear of Bitcoin, in time to come?

——————————————————————————–

Astute investors have started to concentrate on whether there are any signs that a bear market might be beginning in the US stock market.

Bull market correction A bear market is when there are declines of 20 percent or more in the markets.

Goldman Sachs looked at a combination of factors that were important cyclical indicators of a bear market in the past, including recessions, rate hikes, inflation, unemployment, yield curves and valuations. Goldman Sachs has noted that the bear market tends to fall into three broad categories:

1) Cyclical bear markets are a function of the economic cycle, typically caused by some combination of rapidly rising interest rates, impending recessions, rising unemployment and decline in profits.

Fed is conscious of not raising the interest rate too quickly (Learning from past aggressive rate hikes on bringing about bear markets in 1966 and 1968-1970, among others). The effect of controlling the interest rate increase by Fed has also keep inflation in check and not spike sufficiently to generate a recession. – The risks of a ‘cyclical’ bear market — are lower now.

The relationship between stocks and recessions is very well-studied, but unfortunately, the relationship is very tenuous. No two Recessions are alike –  It should be taken as one factor that support the market bear notion but not the whole true.

2) Structural bear markets are triggered by imbalances and financial bubbles. The most recent examples are the dot-com bust of 2000 (technology bubble) and the financial crisis of 2008 (real estate bubble).

Profit declines or high valuations are prevalent now. Lately, sign of more companies making profitable earnings are rising.   S&P 500 are at roughly 18.0, which is in the top 89 percent of where it has been since 1976, according to Goldman. While high valuations are a feature preceding most bear markets, you can have high valuations for very long periods. The rise in valuation is largely a function of very low inflation, bond yields and the impact of quantitative easing.

October 26, 2017, Republicans passed the bill in Congress to eliminate the popular State And Local Tax deduction (SALT) in the tax reform framework.  The current tax reform framework calls for nixing SALT deductions, a tax break used by nearly one-third of filers. Cutting the deduction would help Republicans raise more than a trillion dollars to help pay for tax cuts over 10 years, making it a huge source of revenue for their overall plan to reform the tax code. -A possibility of more money being make available for spending by businesses and individuals alike, and triggering a bigger growth in the US economy.

3) Event-driven bear markets are triggered by some significant macro or geopolitical event such as a war or an oil shock. They are “one-off” events that usually do not lead to a recession, eg Black Monday, October 19, 1987.

“Black Swan” event- Since the event is unpredictable and unexpected, it is next to impossibility to calculate probability models, to mitigate it. – It is best to leave it as it is, and spend the time, energy and resources on preventable things that we can do.

(The term “Black Swan Theory” was popularized by Nassim Nicholas Taleb in his book “The Black Swan”.)

The bulk of the above conclusions come from an article written by Bob Pisani | @BobPisani https://www.cnbc.com/2017/09/26/in-this-9-year-bull-run-watching-for-signs-a-bear-may-be-lurking.html