As noted in two reports last week (MRB Investment Theme: “Where Are We In The Investment Cycle?” and “Investment Cycle: Potential Bear Market Catalysts And Current Positioning”), the current bull market in global equities and the stock/bond ratio is into the mature stage (Phase 5), yet the traditional catalysts that have triggered bear markets are still missing. Perhaps the war in the Middle East and related energy shock may yet cause a bear phase and an economic recession, although the odds of such a dire outcome have diminished as it is clear that the U.S. wants an end to hostilities.
The traditional catalysts to end a bull run have been restrictive monetary and fiscal policies. Instead, this cycle has witnessed massive stimulus which continues to fuel economic growth, consumer price inflation and asset price inflation.
The reports concluded that the easy money of the cycle has been made, and investors will need to be increasingly selective, especially now that many bubbles have been inflated. We recommend focusing on assets with supportive underlying fundamentals and less exuberance, including positions that benefit from a rotation away from U.S. mega-caps towards select non-U.S. equities and currencies.
