Is the bull run finally coming to an end? Many investors think so, including Steve Cohen, the billionaire hedge fund manager who said last week that we're in a late market cycle and returns over the next two years won't look so good. With the benefits of tax reform in the rearview mirror and with labor productivity slowing, others think that America's GDP, which expanded by 3.5 percent in the third quarter, will grow more slowly in 2019.
For Jeff Mills, co-chief investment strategist at PNC Financial, that means adjusting his company's portfolios to take advantage of late-cycle opportunities — and to give more thought to what might happen when the bull becomes a bear. "I don't think it's going to come to an abrupt end," he said, "but growth will absolutely slow next year."
Investors may already be anticipating a turn of events despite strong third-quarter growth. Since January the S&P 500 has fallen by 2.35 percent, its worst performance since the 2008 recession, while the Dow Jones Industrial Index is also down 2.17 percent on the year.
The SPDR S&P 500 ETF Trust, which tracks the S&P 500 and is the world's largest exchange-traded fund, with $256 billion in assets under management; and the SPDR Dow Jones Industrial Average ETF, which has $22 billion in AUM, have dropped by 2.05 percent and 2.10 percent, respectively, year-to-date, according to S&P Capital IQ.
U.S. markets have struggled — the S&P 500 and the DJIA fell on Friday by 0.66 percent and 0.73 percent, respectively, largely because of worries over trade wars and rising interest rates, said Kristina Hooper, Invesco's chief global market strategist. "Tightening can potentially asphyxiate economic growth, and there's potential for trade wars to get worse," she said. "Those two factors have impacted markets this fall."
Going forward, it's going to be harder for companies to generate the same kind of earnings as they have been, while these two risk factors could cause the economic cycle, which she said is in the midst of moving from a mid- to late-cycle, to end faster than expected. "I still think the business cycle has some legs, but overtightening by central banks and trade wars could hasten the demise of the economic expansion," she said.