Interview, Webinar, Other
Why Investing in the Longest Bull Market in History is Still a Smart Move
- The U.S. economy and current bull market are expected to continue growing through 2020, with the expansion not ending this year due to solid fundamentals, significant deleveraging, and below-average economic imbalances.
- The current probability of a recession is estimated at 20% to 25%, potentially trending closer to 20%, while the probability of a positive return for investors remaining invested during an expansion is 87%.
- If the economy remains one to 18 months away from a recession, the S&P price return over a six-month period is projected to be approximately 8% to 9%, with significant upside potential if the recession remains distant.
- The Federal Reserve is expected to maintain its current rate policy for the remainder of the year barring exogenous shocks, a pause anticipated to extend the economic expansion.
- Inflation is not expected to rise significantly even if unemployment continues to improve, and the mortality rate of the coronavirus is projected to be between 2% to 3% with a transmission rate lower than SARS.
- Short-term market volatility may occur over a few months regarding the coronavirus before underlying economic trends assert themselves, with sector impacts including gains for pharmaceuticals and losses for energy, commodities like oil, and Chinese equities.
- Geopolitical risks involving China, the Middle East, North Korea, cyber attacks, and terrorism are considered persistent factors that could impact risk premiums and oil prices, though clients are advised not to adjust portfolios based on such unanticipatable events.
- Strategic asset allocation recommendations include a larger overweight position in U.S. equities relative to market capitalization indexes and underweight positions in both developed and emerging market equities.
- Historical data suggests the third and fourth years of a presidential first term typically offer very attractive equity returns, while the fourth year of a second term is expected to see poor returns; the fourth year of a first term also generally exhibits low volatility, though statistical significance is limited.
- U.S. preeminence is expected to persist as the gap widens regarding demographics, labor productivity, export competitiveness, natural resources per capita, and earnings per share growth compared to other global regions.
- The energy sector and commodities like copper may temporarily dampen growth in China, and expansions in developed economies are expected to continue for longer durations than those observed prior to the 1950s.
- For clients with significant capital gains in high-tax jurisdictions like New York or California, the market would need to decline approximately 29% to erase gains after accounting for long-term capital gains taxes.