US 

Why the US bull market will lumber on

Why the US bull market will lumber on

The market turmoil that came to US investors in the second half of 2018 is likely to persist into the new year, according to Hugh Grieves, who runs the £586m Miton US Opportunities fund. 

Mr Grieves said that despite the recent market turmoil, investors should not necessarily interpret this as being the end of the bull market.

The S&P 500 has had a torrid end to 2018 and has lost nearly 18 per cent since October - and nearly 10 per cent over the past 12 months.

Over the past week alone, the index has lost more than 9 per cent as US stocks had one of their worst weeks in a decade.

Mr Greives said: "Economic growth looks to have peaked at 4.2 per cent in the second quarter of 2018.

"Growth in 2019 will almost certainly be at a slower, albeit positive level, as earlier tailwinds fall away.

"Firstly, the sugar rush of lower taxes will begin to fade and secondly, a more normalised monetary policy begins to bite; interest rates have been raised multiple times.

"Admittedly, while a slowing economy does precede a recession, in itself it is not a cause of a recession and hence the end of this bull market.

"Already in this economic cycle we have seen the economy slow twice (in 2011 and 2016), only to reaccelerate each time and for this bull market to soldier stubbornly on.

"If as Jerome Powell [chairman of the Federal Reserve] now hints, further interest rises will be limited and, if trade wars can be averted as US President Donald Trump posits, then this bull market will lumber on, providing positive albeit pedestrian returns for investors into next year."

Looking back on 2018, Mr Grieves said the year fell into two unequal halves: January and then the rest.

In the first month Mr Grieves said investors enjoyed the apparent certainty of healthy economic growth, boosted by earlier tax cuts and supported by a benevolent bond market.

But then in February, US President Donald Trump imposed broad tariffs on imported steel and aluminium products.

This signalled the beginning of an aggressive protectionist trade policy, firstly aimed at improving trade balances with Canada and Mexico, and then with the rest of the world, but especially with China.

As Sino-US relations crumbled throughout the year, Mr Grieves said markets attempted to assess whether this was the start of a new 'cold war' between America and its biggest trading partner and largest creditor, or alternatively a high stakes negotiating strategy.

He said the initial fears around the pace of US interest rate rises, which sparked a wave of volatility at the start of October, has led to "cracks" appearing in the economy. 

david.thorpe@ft.com