Opinion | Are the US Feds’ knives already out for slaughtering the equity market bull?
We have moved to “Overweight on China equities,” but if 10-year US Treasury real yields break towards 1.5 per cent, it may be time to review our positions.
They say bull markets do not die of old age, but are murdered by the Fed. Last week, inflation-fuelled fears of a greater-than-expected rise in interest rates gave the ageing Bull a severe mauling – particularly in the US – prompting investors to ask whether the global rally in equities was set to roll over; or whether it had the legs to continue higher.
Already the longest bull market in the US since the 1930s – extending gains for 106 months, or almost nine years – questioning the longevity of the rally is entirely reasonable, particularly given the 6 per cent surge in the S&P in January alone.
But as a general rule, what melts up must also melt down; and the correction – particularly in Asia – has been brutal, returning prices to levels last seen in October/November of 2017.
It is highly likely that the growth-inflation trade off, which is driving risk sentiment currently, is likely to continue for some time.
In anticipation of likely higher volatility, how should investors approach the market? Should we be greedy when others are fearful, as Warren Buffett advised? Or should we know when to hold ‘em or when to fold ‘em, as Kenny Rogers suggested?
