Making money by investing in the stock market has gotten more difficult.
For almost a decade, it has been difficult to lose money in the U.S. stock market. Over the next decade, the opposite will be true. It could be hard to do anything but lose. This according to analysts at Morgan Stanley.
We are seeing a convergence of negative market conditions. Equity valuations are high. And most believe that were are late in the business cycle. Meanwhile, the Federal Reserve has embarked on a policy of monetary constraint.
Thus, the outlook for market returns has precipitously worsened in recent months. Analysts and investors have grown increasingly wary. They believe that the lengthy bull market that began in the wake of the financial crisis could be, if not coming to a close, petering out. More market participants view the economy as being in the late stage of its cycle. Furthermore, a recession is widely expected in the next few years. All of that could result in an equity-market environment that’s a mirror image of recent years. Until now gains have been pretty much uninterrupted. In addition, volatility was subdued.
“2018 is seeing multiple tailwinds of the last nine years abate.” This according to a #Morgan Stanley report to clients that was entitled “The End of Easy.” “Decelerating growth, rising inflation and tightening policy leave us with below-consensus 12-month return forecasts for most risk assets. After nine years of markets outperforming the real economy, we think the opposite now applies as policy tightens.”
Differing views on inflation
Some Fed watchers are predicting that the Fed will raise interest rates four times this year.
An acceleration of Fed tightening is seen as a response to fears of rising #inflation. However, there are differing opinions about whether inflation fears are justified. Some observers are very concerned. Others believe that concerns about inflation are exaggerated.
Ian Shepherdson is the chief economist at Pantheon Macro. He believes that inflationary pressures that would justify higher interest rates isn’t really there.
“The wage numbers for the last couple of years have been kind of flat at about 2.5 percent and that’s not really scaring anybody. So that raises the question why on earth is the Fed raising rates?” “It is because of fear of what might be in the pipeline.”
Concerns over the direction of the economy and the market are not merely short-term views. Over the longer term, some believe that the unwinding of debt across the globe will create severe reverberations. #Jim Rogers is a renowned investor. He sees a major downturn occurring within the next year or two.
“When the #bear market comes, it has to be the worst in my lifetime, because the debt is much, much higher than it’s ever been in history.”
“These things always start small and with nobody noticing.”
“For instance, in 2007, Iceland went bankrupt when most people didn’t know there was an Iceland, much less that it could go bankrupt. And then the next thing you knew, Bear Stearns collapsed; and then Lehman Brothers collapsed. Finally, everybody said, “Oh, there’s a problem.”
“That happened slowly over a year. That’s probably what’s going to happen this time. It may have already started. There are companies going bankrupt in China. The whole banking system in Latvia collapsed recently.”
“Who knows what will cause it? I don’t. Rising interest rates, trade wars, real wars— many things could cause it. But it will be gradual. The worst collapse in my lifetime doesn’t happen in a day. It will evolve over a year or two.”
“Historically, we’ve always had economic setbacks and bear markets. In 2008, we had a problem because of too much debt worldwide. Since then, the amount of debt has skyrocketed everywhere in the world. Why would people think the next collapse—whenever it comes—won’t be worse than the last one?”