Summary
- US equities are most likely in very late stage of a bull market.
- Europe and some Asian markets probably peaked during the past few months.
- Technical analysis suggests that US equities are near the end of a cyclical trend.
- The bearish worldwide macro-technical picture could signal a peak for US equities within the next few months.
A Bull Market For The History Books
US equities performed a record bull run from the end of the great recession up until now. The broad-based S&P 500 index gained almost 340%. It is the longest bull run in US history. It did not unfold as a straight line and showed some twists and turns. The S&P 500 corrected on six occasions by a low double-digit figure since 2010. The subsequent rallies erased all corrections leading to today’s levels.
The key question is how long can this bull run continue without another major correction? Our answer, which is based on statistical and technical evidence, concludes that the market is likely to correct sooner rather than later.
Cyclical Correction Likely
We conducted a descriptive analysis of expansionary cycles in the US economy and published it here. The article shows statistical evidence, which suggests that the current expansion cycle is long relative to historic standards. Moreover, we conclude in the same article that the stock market is likely to lead an economic downturn. Hence, it is likely that the S&P 500 peaks before or at the same time as GDP starts contracting.
The technical answer of our nearby cyclical downturn expectation is motivated by classical technical and especially Elliott wave analysis. A worldwide cross-market picture shows that equity indices approach a valid terminal Elliott wave interpretation of multiple degrees. That’s not only the case in US equity indices but also in Europe and Asia. We provided examples of long-term technical evidence for some major European indices in this publication. None of the major European equity indices followed US equities into the recent highs. They could not benefit from the tailwinds of a bullish US market. This could imply that most of the European equity indices reached their cyclical high at some point during the past year. The Shanghai Composite index shows a downtrend since 2015 as well. A cyclical peak occurred probably in January 2018 before the index lost more than 20% of its value.