America’s second-longest bull run in stocks on record will end by late 2018, when U.S. credit also will enter its first bear market since the global crisis, according to a Bloomberg survey of fund managers and strategists.
The poll of 30 finance professionals on four continents showed a lack of consensus on the asset judged as most vulnerable now, with answers ranging from European high yield to local-currency emerging-market debt -- though they were mostly in the bond world. Among 25 responding to a question on the next U.S. recession, the median answer was the first half of 2019.
The would-be end of a great cycle for financial markets would come just about when central bank balance sheet contraction is expected to kick into high gear. By mid-2018, the Federal Reserve’s wind-down may be well under way, and the European Central Bank might have joined the Bank of Japan in tapering asset purchases.
While none of the respondents signaled a 2007-09 style meltdown, even smaller-scale downturns have wreaked large-scale damage in the past. The 2002 bear market in U.S. stocks wiped out more than $7 trillion of value.
“Consequences could be very painful,” said Remi Olu-Pitan, who manages a multi-asset fund at Schroder Investment Management Ltd. in London. “We have had a liquidity-fueled bull market. If that is taken away, there is a pressure point,” she said.
One notable absentee from the list of major concerns cited in the survey was China, with just one investor highlighting the danger of a disruption in that country’s financial system. Atul Lele, chief investment officer at Nassau, Bahamas-based Deltec International Group, said the chance for excessive tightening by the Fed comes a close second to his China worry.
The median answer of 21 survey participants responding to the question of when they see a slide of more than 20 percent for the S&P 500 Index was the fourth quarter of 2018; two projected the bear market starting in the final three months of this year.
Among the 21 respondents on a bear market for credit -- defined as a 1 percentage point jump in the premiums of U.S. investment-grade corporate bonds over comparable government-debt yields -- the median pick was the third quarter of 2018.
Here’s a snapshot of other findings from the survey, conducted July 14-21.