The bull market has been supported by multiple factors, including steady global economic recovery, cheap money from central banks, record corporate profits and buybacks, and lastly came corporate tax reforms.
Predicting an end to the bull market has always proven a hard call. Bull markets do not expire as they age, but they also do not last forever. One factor that could lead to the end of a bull market is sentiment. When people become tremendously terrified about the economy’s performance, they begin to exit.
Last Friday’s US jobs data was the latest economic figure showing cracks in the world’s largest economy. Despite the unemployment rate dropping to 3.8% from 3.9%, and wage growth accelerating to 3.4% from 3.1% over the past 12 months, it was the headline number that took markets by surprise. The US economy added only 20,000 jobs in February versus estimates of 180,000. That’s a big shock and could certainly indicate the US labor market has reached its full capacity for the current economic cycle. Unless we see an upward revision in March’s reading, investors will become increasingly worried.
The poor jobs number came after a series of weak economic data from China and Europe, taking Citi’s economic surprise index deeply into the red.
Will Central Banks Intervene?
Central banks have already begun providing signals to intervene. On Thursday, the ECB followed the Federal Reserve’s steps by taking a U-turn in policy and reviving a stimulus programme to provide banks with new liquidity “TLTRO”. Interestingly though, the market’s reaction wasn’t positive, with all major European indices ending the day in red. This shows that central banks’ ability to prevent a slowing economy is weakening, given the limited tools currently available.
While central banks have been investors’ real friend throughout the past decade, it’s now more about how the economy performs in the coming months, and whether we see a significant recovery in the second half of 2019.