US powers the bull and will start a bear
There are plenty of things that are 100pc American. Cowboy movies, country music, high school rom coms and presidents with weird orange hair for example. Now there is one more we can add to the list. The bull market. We already knew that the global markets were deep into a long bull run that started in 2009. Now it turns out that has been almost completely driven by the rise in stock prices on Wall Street.
There are some perfectly valid reasons for that. The US has the world’s most formidable technology industry and that has been growing explosively. It has the most durable economic recovery of any of the major industrial nations. And it now has a government with a pro-growth agenda. Even so, there is a catch to the US dominance of the markets over the last few years – if the bull market is “Made in America”, the bear market, when it comes, as it inevitably will one day, will be made there as well.
It may not always feel like it in this country, where the FTSE has only recently managed to wobble its way nervously past its 1999 peak, but global equities are on an epic upward run. The bull market that started in March 2009, after the wipeout that followed the near collapse of the global banking system, is now the second longest in stock market history. It has not quite overtaken the run from 1990 to 2000 yet, but it may well get there soon.
But that has hardly been spread evenly around the world. Some number crunching by Bespoke Research this week revealed just how dominated by the US it has been. The S&P 500 is now up almost 400pc since the start of the bull run. The Nasdaq 100, home to the likes of Amazon and Netflix, is up by 650pc. But once you start looking elsewhere the numbers are far less impressive. The bestperforming country outside the US since March 2009 is Hong Kong, up 285pc, but that is still a whole hundred percentage points behind the S&P and less than half the Nasdaq 100.
Germany has managed to gain 213pc, and France 186pc while the UK is up by a similarly modest 183pc. The emerging markets have only managed to add 162pc, while the much-hyped Brics are only up by an even more disappointing 129pc. In fact, if you exclude the US, it is hardly a bull market at all.
It is not too hard to work out the reasons for that. What meagre growth there is in the global economy has largely been captured by the tech giants, and that is an overwhelmingly American industry. Next, it has managed to stage the most durable recovery of any of the major economies following the financial crisis. It is generating jobs at a record rate, and it is expected to grow by nearly 3pc this year. Indeed, it is the only country where the central bank has felt confident enough to start raising interest rates again.
It has the dollar, which has been strengthening for the last few years. And now it has a president who, for all his personal obnoxiousness and chaotic management style, is pushing a genuinely pro-growth agenda.
Trump’s assault on red tape and regulation, and his dramatic slashing of corporate tax rates, will drive growth even higher. The trouble is, there is a twist, and an important one. If the bull market euphoria is centred in America, then that is where the inevitable crash is most likely to come from. In any collapse, it is usually the asset that has soared the most, and where exuberance has become the most irrational, that the cracks start to appear. What might it be? There are no shortages of possibilities. The Fed has been brave in pushing forward with the normalisation of rates, but there are lots of examples of central banks moving too quickly and plunging an economy back into recession. It might be a puncturing of the tech industry.
With Netflix on a price-earning ratio of more than 200 and Amazon on more than 300 there is a heck of a lot of hope in the price: it wouldn’t take much for confidence to evaporate.
And Donald Trump remains capable of all kinds of idiocy. One thing seems clear: the next bear market, like this bull one, is likely to be American made – and that is the one country, economy and market that any investors feeling nervous about the next collapse need to keep an eye on.
‘Trump’s assault on red tape and regulation will drive growth even higher’