US Market Volatility and Sleepless Summertime Nights

The summer of 2019 has given equity investors a lot of things to worry about. Yet, Franklin Equity Group’s Grant Bowers says the health of the US equity bull market shouldn’t be one of them—at least not now. He discusses the biggest growth driver for both the US and global economy and explains why he likes the long-term prospects for select companies in the health care and technology sectors.

This summer, investors have grappled with a series of market-moving headlines on a slew of topics, from politics to global trade to interest rates. More recently, the US Treasury yield curve inverted, leading some market commentators to suggest a US recession or market downturn is on the horizon.

In our view, this debate about where we are in the economic cycle and when we will see the next downturn or recession will affect US equities for the remainder of 2019. There has already been a lot of talk around the duration of this bull market.

The Aging US Equity Bull Market

While we don’t expect markets to climb forever, history has shown us that bull markets don’t die of old age alone. These are the types of issues that have brought the end to bull markets in the past:

  • rapidly rising inflation or interest rates,
  • the buildup of speculative excesses or bubbles, or
  • a geopolitical shock that impacts demand.

The current US equity bull market has been running for more than a decade, which is long by historical standards. However, it has also been very shallow and slow compared to past periods of economic expansion. This slower rate of growth is a result of the severity of the global financial crisis a decade ago, and the low-inflation, low-interest-rate environment that followed.

Given the modest rate of growth this recovery has seen over the last 10 years, it is not surprising the market’s run has lasted longer than many expected. Nor is it surprising to us it has not generated the levels of excess that typically begin to show this late in the cycle.