We examined the growing risk of an end to the relentless bull market in equities and most other risk asset markets. Financial markets have pockets of excess that typically have only been seen during a speculative frenzy and near an equity market top. The offset is that global monetary and fiscal policies are easy, removing the traditional catalysts for an equity bear market.
Investors need to watch for alternative risks that could end the cycle, some of which have appeared recently: anything that causes overly optimistic A.I. monetization timelines to be pushed out; a rise in long-dated bond yields or widening in corporate bond spreads; and/or the potential for another disruptive anti-growth government policy.
A.I. plays had a rough week, as did some other formerly high-flying assets, such as Bitcoin. A tougher investment environment looms and selectivity will be increasingly important going forward. Fortunately, investors no longer need to chase the most expensive parts of the U.S. equity market, given that a rotation in performance is already underway within the U.S. and to other regional markets.
