Monday, 30 September 2019

Prepare for the end of the bull market

Last week, Lakshman Achuthan and Anirvan Banerji, co-founders of the Economic Cycle Research Institute, wrote in a CNN article that a recession in the US is still on the table.

“Growth in the Economic Cycle Research Institute's U.S. Leading Employment Index (USLEI)...has plummeted to its worst reading since the Great Recession,” they wrote.

They concluded that “the message is clear that the economy will keep slowing and the risk of a recession is still growing”.

In the meantime, Mark Hulbert at MarketWatch suggested that investors prepare for the end of the bull market.

“You might start reducing your exposure to stocks now, even if you think the bull market has room to run. That’s because stock returns in the last months of a bull market tend to be mediocre at best. So don’t try to hang on for that last penny of profit,” he wrote.

Hulbert said that recession risks are relatively high now. He cited an econometric model based on the yield curve which showed that the probability of a recession in the next 12 months is between 30 and 40 percent.

Hulbert acknowledged that there is no certainty that the bull market is coming to an end though and suggested that investors reduce their equity exposure gradually or shift stock holdings from more speculative to more conservative positions.

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