Next bear market hits in 2018: poll

America’s second-longest bull run in stocks on record will end by late 2018, when U.S. credit also will enter its first bear market since the global crisis, according to a Bloomberg survey of fund managers and strategists.

The poll of 30 finance professionals on four continents showed a lack of consensus on the asset judged as most vulnerable now, with answers ranging from European high yield to local-currency emerging-market debt — though they were mostly in the bond world. Among 25 responding to a question on the next U.S. recession, the median answer was the first half of 2019.

The would-be end of a great cycle for financial markets would come just about when central bank balance sheet contraction is expected to kick into high gear. By mid-2018, the Federal Reserve’s wind-down may be well underway, and the European Central Bank might have joined the Bank of Japan in tapering asset purchases.

While none of the respondents signalled a 2007-09 style meltdown, even smaller-scale downturns have wreaked large-scale damage in the past. The 2002 bear market in U.S. stocks wiped out more than US$7 trillion of value.

“Consequences could be very painful,” said Remi Olu-Pitan, who manages a multi-asset fund at Schroder Investment Management Ltd. in London. “We have had a liquidity-fuelled bull market. If that is taken away, there is a pressure point,” she said.

Central-bank policy is the linchpin for the majority of respondents. After the unprecedented efforts to shore up financial systems and the global economy, many see a messy unwinding as the top risk.