The Great Bond Bull Market is Over June 2016 will most likely be remembered as the end of the great bond bull market. 34 years earlier in 1982, when then Fed Chair Paul Volcker turned the full force of the Federal Reserve to fighting inflation, both the 10 year Treasury yield and the Consumer Price Index (CPI) stood at approximately 15%.
Blackstone is pleased to offer the following Market Commentary by Byron Wien which shares his thinking on global economic developments, market insights and other factors that may influence investment opportunities and strategies.
We are growing accustomed to wide daily swings in the Standard & Poor’s 500 and the Dow Jones Industrial Average. Triple-digit moves in the latter and double-digit changes in the former are no longer reasons for elation or alarm. The volatility can result from an unexpected economic report or a tweet from the White House.
Many investors think that this bull market and economic expansion have gone on long enough and a bear market and a recession will take place soon. In my view, we have at least a year or two before the next major downturn in either the market or the economy, barring a major geopolitical conflict such as a shooting war with North Korea, Russia or Iran.
There could always be an exogenous event like military conflict with North Korea, strife in the Middle East that cuts off oil flow or Russian aggression in the Baltics that unsettles markets. The market is assuming none of that will happen, and if the market is right, we have at least one to two years to go before we get into serious trouble. My overall conclusion is that there are significant investment opportunities outside the United States and many portfolio managers are under-weighted globally.
For some time now I have been concerned about the state of American competitiveness looking out a decade ahead. Innovation has been the lifeblood of our economic success, and nowhere has this been more apparent than in information technology since the advent of the Internet and the Smartphone. China has risen from being a largely agricultural economy when Mao died in 1976 to become the second most important economy in the world today. Still, many thought leaders believe its growth, even at modest rates, is unsustainable and that the country is good at copying the technology of others, but not as strong as an innovator of fundamental technologies on its own.
In my conversations with institutional investors I find a surprising lack of optimism about the outlook for equities. The capitalization-weighted Standard & Poor’s 500 was up over 11% year-to-date, excluding dividends, on September 18. Some would argue that only a few stocks are accounting for the rise, but the equal-weighted S&P 500 was up over 8% year-to-date as well.