Wall Street “chatter” of an looming US bear market are a long way off the facts, according to a leading analyst.
Rumours that a sell-off is imminent, despite the current strong bull market, have been circulating for weeks.
They gained traction when America’s leading market indices – the Dow, S&P, and Nasdaq – finished at a record high after the end of a three-day government shutdown following gridlock over the US budget.
Meanwhile the dollar has plunged against the euro and the pound.
“There’s been almost continual chatter in recent weeks on Wall Street and beyond about the current melt-up, before a forthcoming meltdown,” said Tom Elliot, deVere Group’s international investment strategist.
“It supposes that we’re experiencing the last euphoric rally in an asset class bull market, before the collapse.
“Whilst it’s true that Wall Street is the most overvalued of the major stock markets, I am sceptical about an imminent collapse. Where would it be coming from? The only real risk is that bank account rates or bond yields rise sufficiently to persuade investors to sell shares and invest in risk-free assets.
“But with the inflation so low and the Fed being so cautious, I don’t see that happening any time soon. Another trigger for a sell-off might be a US recession. But again, no evidence of one around the corner.”
Elliot’s comments come the day after the latest forecast from the International Monetary Fund (IMF), showing global growth on course to hit 3.9% both this year and next, with US growth predicted to run at 2.7% this year and 2.5% in 2019.
The World Economic Outlook report says US tax policy changes “are expected to stimulate activity”.
Elliot added: “US stockmarkets are likely to be supported by continuing strong corporate earnings growth, limiting any pull-back in share prices. The weak dollar boosts export earnings, while strong consumer confidence supports domestic-focused sectors.
“Tax cuts will be a net benefit to US corporate earnings, but the impact of changes to the tax code on individual sectors is as yet unpredictable.
“Against this backdrop, I believe that the current rally is sustainable through 2018, with the worst scenario perhaps being a strong early part of the year, followed by consolidation – with minimal gains – over the rest of the year.”
The dollar is currently trading at €1.23 against the euro and £1.41 against the pound, compared with €1.19 and £1.35 on 10 January.