Beware the runaway bull

PUBLISHED: 13:00 13 January 2018

Markets remain bullish but experts are warning ivestors to be cautious   PHOTO: © Beowulf Sheehan/ZUMA Wire)

Markets remain bullish but experts are warning ivestors to be cautious PHOTO: © Beowulf Sheehan/ZUMA Wire)

Zuma Press/PA Images

The stock markets are booming but how long can the party last? ANGELA JAMESON investigates mounting worries over how long the bull will run for

Global stock markets have had their best start to a year since 2006, but concerns are mounting that they will blow up, sooner rather than later.

The FTSE 100 hit a record high on its first day of trading in the new year and has kept on climbing, surging past the 7,200 mark.

In the US, the Dow Jones industrial average raced past 25,000 last week. Even the Japanese stock market, for years an under-performer, is at a 26-year high.

Yet some of the best-known companies in the UK have seen spectacular share price falls in the last few months – think Centrica, BT, WPP and, this week, Mothercare. This means that there are stocks out there that look cheap and optimists are continuing to buy. Yet as we enter the tenth year of the US bull market, voices are increasingly asking how long it can go on (The FTSE has not performed anywhere as well, as Europe experienced a double-dip recession).

Willem Buiter, Citigroup’s star economist, this week warned that investors needed to be careful, especially as central banks moved to shut off stimulus measures.

However even Buiter’s caution was tempered. “We are reluctant to call an end to the bull market in risk assets just yet but a considerable degree of caution is now warranted,” Citi says in a note to clients.

Prof Buiter, who used to set UK interest rates and is a professor at the London School of Economics, goes on to say that Donald Trump’s triumphant tax cuts and extra spending comes at exactly the wrong moment in the economic cycle and could led to a boom that forces US interest rate setter, the Fed, to slam on the brakes.

Meanwhile, other usually cautious commentators are still saying that 
there is money to be made in these markets.

Jeremy Grantham, the usually bearish British veteran investor who co-founded the US giant GMO, says he believes stock markets will “melt up”. This curious phrase suggests that stocks will go higher, perhaps as much as 50% higher, before the bubble finally bursts.

Grantham’s rationale is that in the US the “extremes of euphoria” that are usually associated with bubbles are not yet present. He also suggests that the stock market’s climb has been broadly based, with all investors benefiting. In a bubble, typically, there are a small group of winners who streak ahead of the majority of losers.

So should investors think about taking profits now and hunkering down? The trouble is that those who headed for the sidelines two years ago have since missed out on 15% gains for the FTSE 100.

However, there are other warning signs of bubble-like conditions, not least the rise of bitcoin and other cryptocurrencies, in the last few weeks of 2017.

In the UK we now have a company that provides software for takeaways (Just Eat) that is valued higher than Sainsbury’s at £5.5bn. Fevertree, the posh tonic maker, is worth £2.3bn, considerably more than Greene King, the pub company with 3,000 pubs, restaurants and hotels across the country.

However, there haven’t been many companies rushing to float on the markets. The hesitancy over bringing companies to market reflects wider concerns, particularly in the UK, that these are volatile times.

For all the worry about racing markets, European economies are looking fundamentally healthy heading into 2018.

The UK is experiencing more people in work, a recovery in manufacturing and some signs of wage growth. Growth may be below trend, but hardly a disaster.

It is a reasonably good place to be in.

Few people are prepared to put their necks on the line and predict an outright stock market crash. Such events are few and far between historically, so there’s more chance of getting it wrong than right.

The party continues, for now.

Support The New European's vital role as a voice for the 48%

The New European is proud of its journalism and we hope you are proud of it too. We believe our voice is important - both in representing the pro-EU perspective and also to help rebalance the right wing extremes of much of the UK national press. If you value what we are doing, you can help us by making a contribution to the cost of our journalism.

  • Become a friend of The New European for a contribution of £48. You will qualify for a mention in our newspaper (should you wish)
  • Become a partner of The New European for a contribution of £240. You will qualify for a mention in our newspaper (should you wish) and receive a New European Branded Pen and Notebook
  • Become a patron of The New European for a contribution of £480. You will qualify for a mention in our newspaper (should you wish) and receive a New European Branded Pen and Notebook and an A3 print of The New European front cover of your choice, signed by Editor Matt Kelly

By proceeding, you agree to the New Europeans supporters club Terms & Conditions which can be found here.



Supporter Options

Mention Me in The New European



If Yes, Name to appear in The New European



Latest Articles

Podcast

ANTI-BREXIT EVENTS

Grassroots anti-Brexit campaigners are increasing the pressure on politicians ahead of a series of important votes this year. Here is a list of the events organised across Britain in the coming weeks and months.

Trending

Newsletter Sign Up

The New European weekly newsletter
Sign up to receive our regular email newsletter

Our Privacy Policy