Wall Street Agrees On When The Bull Market Will Finally End

US stock indexes remain at record highs, and volatility near its lows, despite signs that their recordsetting run is losing steam as it becomes increasingly dependent on a narrow band of stocks. Indeed, signs that the rally is running on fumes have convinced portfolio managers and Wall Street strategists that the second-longest bull market of all time will be over in less than 18 months, while a similarly longstanding rally in bonds is also nearly ready to roll over, 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.”

Of the 21 participants who responded to Bloomberg's question of when they see a slide of more than 20 percent for the S&P 500 Index, the median response was the fourth quarter of 2018. Two forecast that the bear market would begin during the final three months of this year. Of the 21 respondents who forecast a bear market for credit, defined as a 1 percentage point jump in the premiums of US investment-grade corporate bond yields over comparable government-debt yields, the median pick was the third quarter of 2018.

According to Bloomberg, many of these strategists and portfolio managers see central bank policy as the lynchpin of their thesis, believing that years of easy-money policies have artificially inflated stock and bond valuations. By the beginning of 2019, US interest rates will have risen another 1.5 to 2 percentage points, and the central bank will have unwound at least part of the $4.5 trillion in Treasuries and MBS that the Fed purchased during the recession. Of course, this is hardly a coincidence, as Remi Olu-Pitan, who manages a multi-asset fund at Schroder Investment Management Ltd. in London, explains.

Furthermore, it’s widely expected that the Bank of England, European Central Bank and the Bank of Japan will all have begun tapering asset purchases, raising interest rates – or possibly both. The Bank of Canada has already shocked market strategists by raising its benchmark rate for the first time in seve years, which it did earlier this month.

“Consequences could be very painful,” Olu-Pitan said. “We have had a liquidity-fueled bull market. If that is taken away, there is a pressure point,” she said.

Indeed, in a version of a chart that we’ve presented many times, there’s a tight correlation between equity gains and global central-bank stimulus.

None of the poll’s respondents expect a 2007-2009 style meltdown. But as is depicted by Bloomberg in the chart below, the 2002 bear market in US stocks wiped out more than $7 trillion of value.

To be sure, some Wall Street strategists believe a downturn in stock and bond markets could begin as soon as the third or fourth quarter of 2017.

According to Bank of America strategist Michael Hartnett, risks for equities are set to multiply in the third and fourth quarters. Hartnett said in a note published earlier this month that "the most dangerous moment for markets will be when rising rates combine in three or four months’ time with an inflection point in corporate profits. In anticipation of this, we would use the next couple of months to buy volatility, and within fixed income slowly reduce exposure to IG, HY, and EM bonds."

Atul Lele, chief investment officer at Nassau, Bahamas-based Deltec International Group, was the only respondent to the poll who ranked an economic collapse in China as his primary concern, followed by excessive Fed tightening.

All eyes are on the Fed this week as it prepares to deliver its July policy update on Wednesday. Investors will be looking for clues about when the great balance-sheet unwind will begin, after New York Fed Governor William Dudley, along with a few other officials, said that process would begin later this year.


Mr 9x19 Quantum Bunk Wed, 07/26/2017 - 05:03 Permalink

those charts, numbers, economics, all is faked, twisted, distorded. you CANNOT count on this to make forecast.take reality, facts, actual scenarii to make a simple statment, all shop are closing, people do not have job, taxes increase, in europ they will put 30% up on tobbaco taxe, setting price at 10€/packet. the cliff is about to be jumped.there is nothing structurally viable, only the integrated elite and corp people are still floating, all the rest is sinking.recovery is a lie, from 2008 to 2017, situation is getting worse month after month, this financial world is disconnected from reality of lower classes, the base that keep the world turning.those announcing date in years to have a slow in the economy are those who dream about a tomorrow like today, they are scared as fuck to loose the cash they won that rest on void and valuate nothing but air.the reel futur is ugly, and you do not want to know it. it started yesterday, today is better than tomorrow.act accordingly.financial world without grid do not exist. it is crap materia thrown in the air.it all gonna implode way before mid century.

In reply to by Quantum Bunk

secretargentman Déjà view Wed, 07/26/2017 - 02:09 Permalink

The solution is obvious. The government should simply set a date for the market to crash. That would give everyone plenty of time to get out of the markets ahead of time. No one loses! See all the good government can do? %puke% Sorry... I was just channeling an ignorant liberal there for a moment. Not sure how that happened...

In reply to by Déjà view

Future Jim Raffie Tue, 07/25/2017 - 22:16 Permalink

I also feel like it will be early 2018. That's what I predicted last november, but Trump subsequently started working really hard to give the establishment everything they want. Also, I am usually wrong -- like everyone else -- except Brandon Smith ... his predictions are always right. He must be a billionaire by now. He predicted Trump's victory while he was still in the womb.

In reply to by Raffie

BeanusCountus Future Jim Wed, 07/26/2017 - 00:35 Permalink

Long term, almost everyone is right with predictions about the market. Probably because it does go up and down, big time both ways. Short term is always almost impossible to predict. The guys that do it are usually only right once in their lives but become famous nonetheless. That said, I will try to get famous with this: When the fed finally reduces the balance sheet by $1.5T, the PE of the S&P will be 15% lower than it is today. Reduce balance sheet by $2.5T? PE of S&P will be 30% lower than today. Just my guess, hoping to get on CNBC with that if it happens. For a fee of course.

In reply to by Future Jim

H H Henry P P … Decay is Constant Tue, 07/25/2017 - 22:15 Permalink

It's easy to keep picking on the doomsdayers during this rally.  The likes of Peter Schiff, Jim Rogers, etc. have to have the fingers pointed at them laughing and getting eyes rolled at.  The thing is, they only have to be right just that one time.  This next one will not be some "healthy, needed" recession.  If the dollar goes to shit, there is no way to save it.  And if the dollar goes, so do the cryptos.  No one is going to exchange gold & silver for cryptos lol.

In reply to by Decay is Constant

GUS100CORRINA Burltron Tue, 07/25/2017 - 22:14 Permalink

Wall Street Agrees On When The Bull Market Will Finally EndMy response: PRIDE goes before a FALL. Until we get a handle on reality (DEBT, REAL CASH FLOWS, MONEY SUPPLY METRICS, REAL ECONOMIC METRICS, etc.), we are going to be in for many surprises.It is the constant lying and manipulation that is the problem. Everyone is GUESSING where we really are at in REAL economic activity. Below is the real data.==========John Williams'Shadow Government StatisticsAnalysis Behind and Beyond Government Economic Reportinghttp://www.shadowstats.comNo. 900: June Housing Starts, Preview of GDP BenchmarkingJuly 19th, 2017• GDP Benchmark Revisions Should Weaken Headline Activity in 2014 and 2015• Outlook for Second-Quarter GDP Continues to Darken• Despite a Statistically-Insignificant Monthly Rebound in June Housing Starts, Activity Plunged at an Increasingly-Rapid Pace of Quarterly Downturn• Building Permits and Housing Starts Both Showed Deepening Quarterly Losses: Permits Fell by 2.8% (-2.8%) in First Quarter, by 13.0% (-13.0%) in Second Quarter; Starts Fell by 3.3% (-3.3%) in First Quarter, by 21.9% (-21.9%) in Second Quarter• Downtrending Activity Remained Shy of Recovering Pre-Recession Peaks by 46.5% (-46.5%) for Housing Starts and by 44.6% (-44.6%) for Building Permits======No. 899: June Industrial Production, Retail Sales, CPI and PPIJuly 17th, 2017• Weaker-Than-Expected Headline Reporting Continued, as Negative Revisions Plagued Headline Production and Retail Sales Data• Downside Implications for Both First- and Second-Quarter 2017 GDP• Above-or-At-Consensus Headline June Production and Manufacturing Gains Reflected No More than Heavy Downside Revisions to Prior Months• No End in Sight: Record 114 Months of Continued Non-Expansion in Manufacturing, With June Production and Manufacturing Still Down Respectively by 0.2% (-0.2%) and 6.1% (-6.1%) from Pre-Recession Highs• Retail Sales Contractions Continued, Despite Upside Growth Distortions from Inconsistent Seasonal-Adjustment Revisions; Net of the Gimmicks, the Headline June Sales Drop of 0.2% (-0.2%) Would Have Been 0.5% (-0.5%)• Recession Signal Intensified Sharply; Market Economic Sentiment Appears to Be Shifting to the Downside, as Reflected in a Softening Dollar• Consumer Liquidity Stresses Continue to Restrain Broad Economic Growth• Headline June CPI-U Inflation Unchanged at Down 0.02% (-0.02%), Pulled Annual CPI-U Inflation Lower to 1.63% (Was 1.87%), with CPI-W at 1.50% (Was 1.78%) and ShadowStats at 9.3% (Was 9.6%)• Softening Consumer Inflation Likely Hit a Trough in June• June 2017 Annual Final-Demand PPI Declined to 1.99% (Was 2.36%)

In reply to by Burltron

BeanusCountus GUS100CORRINA Tue, 07/25/2017 - 22:57 Permalink

I follow these numbers every day. And yes, most are distorted by "seasonal adjustments" or some other crazy thing that makes it impossible to arrive at conclusions on what the hell is really going on in America (other countries as well). But there are some signs that are positive. Minimal, but they are out there. Best guess is we are stumbling along. Markets? Simply put, Risk is not priced correctly right now. Sure you can buy stuff that's going up. Pretty thin group these days. Better hit it right though, could get your balls cut off with a 20% whack if your target misses one qtly earnings report. I think the accountants are working OT.

In reply to by GUS100CORRINA

MuffDiver69 Tue, 07/25/2017 - 21:59 Permalink

Reminds me of my wife the third time she was pregnant...Mischievous smile for a couple months and then told me she was pregnant with twins..I knew it was coming and gave her space ...Then wham......

sgorem Tue, 07/25/2017 - 22:11 Permalink

fuck Tylers, we need moar charts so we can figure out the precise fucking minute to pull the trigger and get out with all our money and profit$ and beat the banks to IT! whatthefuck.....thisisGoddamnsarcasm...........

Yen Cross Tue, 07/25/2017 - 22:21 Permalink

  lmaf. Here's where retail starts covering, and the scumbag specs use that "short covering" to cash out.  Stay frosty Bitchez.  FWIW, that douche talking about the eur/usd trade, needs it's head examined. Who  in their right fucking mind, buys a lower yielding currency, then explains the reason[s] why you should capitulate? The REASON 2-year treasury notes were CUSIP positive, was because they're still going to be CHEAP after Moe Howard goes Hawktard in the morning.  Anything can be twisted or hedged<

order66 Tue, 07/25/2017 - 22:24 Permalink

The big thing being missed in all of this is that even though there is record liquidity, there isn't record economic improvement. In fact quite the opposite.Valuations are nose bleed and there's nothing to justify them from a sound business/economic standpoint.At some point, people are going to stop paying "whatever it takes" to own stocks - and bonds - and real estate.It's inevitable. All the printing in the world can't stop it.

Fantasy Free E… Tue, 07/25/2017 - 22:26 Permalink

I am amazed that authors of these articles believe that traditional investment dogma has any relevance with respect to the stock market.When will the bull market end? It will end when there is a big enough shift in political power.http://quillian.net/blog/passive-and-active-mooching/Put a saddle on a dog and tell people it is a horse and I suppose everyone will act in the basis that the dog is a horse.The Federal Reserve is a political institution even if it is defined differenly. Good luck convincing anyone of that.Pilitical institutions don't and cannot make economic decisions. They make political decisions. Until and if the political climate changes, central banks will carry out the political agenda they are given. The market is ripe for a collapse this fall. Will it happen? If it does, supply will have to be high enough to overcome central banks buying with both hands.At what point will the economy completely collapse? It could happen any day. But, central banks can and will buy up controlling interest in the worlds corporations. Don't forget. The money you trade with is with money you have earned. Central banks do not have that limitation.James QuillianFantasy Free Economics  

Cash Is King Tue, 07/25/2017 - 22:51 Permalink

It's always another 18 months till armegeadon. Truth be told, never, at least to my knowledge, has this level of coordinated fraud, manipulation & emergency measures been implemented on a world wide scale. Here & there maybe but never all at the same time. The jig is up for normal markets to commence. Now all we have is Central banks propping the whole damn system up till they find their scapegoat, namely war!

directaction Tue, 07/25/2017 - 23:22 Permalink

This coming correction will differ from all previous market sell-offs in one major way: there'll be no recovery. Not ever. It'll feature a fast-paced, oil-depletion-driven decline into a nightmare in which only the Four Horsemen will prosper. Really. This will be the Big One.

konadog Wed, 07/26/2017 - 00:31 Permalink

The market predictions would be true if the underlying assumption wasn't false. The bubble gets much bigger before it gets smaller.1) Central banks cannot significantly hike rates and unwind their balance sheets. Raise your hand if you think the US govt deep state endless war machine will stop spending more than the rest of the world combined on its military. And maybe pigs will fly. Corrupt governments - the US being among the worst - are completely addicted to utterly insane spending. There is only one way to spend money you don't have and that's for the central banks to keep on printing it. QE4, 5, 6, ... 999999 are more likely than QE unwind and any significant hike in rates means the US govt won't be able to service its existing $20T debt pile - a pile that gets bigger by the second.2) The business cycle is long in the tooth. Is the Fed really going to hike into a recession?  I don't think so.This doesn't end until the ultimate fiat collapse or a public debt jubilee. Continue to accumulate tangibles (PMs, commodities, land, ...).

G-R-U-N-T Wed, 07/26/2017 - 00:52 Permalink

The sky is falling the sky is falling, sooner or later someone's going to get it right, then they will receive the accolades for 15 or so minutes of fame. Dow, 30 - 40k soon!