Two more years of Bull?

How much time do we left in this here bull market?

MKM Partners’ Chief Economist and Market Strategist Michael Darda points out that it is not rate hikes that cause bear markets, it is recessions. A normal rate hike cycle does not, in fact, lead to lower multiples for equities. Rather it is when the Fed goes too far that a recession comes on, which then sets the stage for a stock market plunge. 1937-1938 being the infamous example – when FDR’s money guys convinced him to tighten up policy before the economy had truly gotten back on sound footing. A 50% market crash was the end result.

Darda points out the business cycle will be the tell and so far the Fed has done nothing to derail it. That’s the good news. The bad news is that Q4 2014 may in fact have been the cycle peak for corporate profits. If this is the case, then historically we have something like two more years before the next recession and concomitant bear market…

How much longer will the bull market last? Probably about as long as the business cycle does. Domestic non-financial profits divided (capitalized) by the Moody’s Baa bond yield tend to peak about nine quarters before a cycle peak (i.e., well before S&P operating earnings tend to peak). This series seems to have peaked in Q4 of 2014, which, all things equal (they may not be) would be consistent with the business cycle extending into 2017. Of course, this series may go on to make new highs. However, we have record high profit margins against the backdrop of 1) weak productivity growth rates; 2) tightening labor markets; and 3) a prospective Fed tightening cycle. Thus, it may be safe to assume this indicator has peaked for the cycle.

Screen Shot 2015-06-10 at 9.30.01 AM

Josh here – the one variable that MKM has not considered is that Reese Witherspoon is now developing a new film, Opening Belle, based on a novel set on Wall Street:

The novel, due to be published by Simon and Schuster later this year, is a comedic version of a woman juggling motherhood with a career on Wall Street in 2007, when she must deal with the impending financial crisis while raising three children. The novel is loosely based on Klinsky’s real-life experience working as a managing director at Bear Stearns.

Witherspoon and Papandrea will produce. Jeanne Snow will oversee for Pacific Standard. Julia Spiro and Chantal Nong will oversee for Warner Bros.

When Hollywood falls back in love with Wall Street stories, it’s usually prudent to sell all of your financial assets and hide in a cave for awhile. JK. Or am I?

 

 

 

This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.

The commentary in this “post” (including any related blog, podcasts, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Ritholtz Wealth Management employees providing such comments, and should not be regarded the views of Ritholtz Wealth Management LLC. or its respective affiliates or as a description of advisory services provided by Ritholtz Wealth Management or performance returns of any Ritholtz Wealth Management Investments client.

References to any securities or digital assets, or performance data, are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.

Wealthcast Media, an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. Investments in securities involve the risk of loss. For additional advertisement disclaimers see here: https://www.ritholtzwealth.com/advertising-disclaimers

Please see disclosures here.

What's been said:

Discussions found on the web
  1. new-kissanime.me commented on Sep 16

    … [Trackback]

    […] Information to that Topic: thereformedbroker.com/2015/06/10/two-more-years-of-bull/ […]