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By Rich Weiss - November 19, 2018
You've probably seen the pundits and prognosticators talking in baseball terms about the lifecycle of the current bull market. "We're in the late innings" is what I tend to hear a lot. But I'll politely disagree.
Instead, I think we're actually in extra innings. And here's why I can make that case: while the U.S. stock markets are near all-time highs; the U.S. economy is strong and has a low unemployment rate. But there are also some things that cause me some concern, starting with the narrowness of the U.S. stock market surge. So much of it is confined to not just the tech sector—but only the hottest of tech companies: Facebook, Amazon, Apple, Netflix and Google. If you strip out those names, the broader market would be pretty flat this year.
Am I saying that we're at the top of the market? Absolutely not. It's a fool's errand to try to time the markets—either on the upside or downside. But I would suggest a more cautious, surgical approach to investing in this environment.
Click on the video below to see what else I have to say about this market, and where we might be headed from here.
Some have been related it to being in the bottom of the ninth—the later innings of a baseball game. But arguably, we may even be in extra innings at this point. And the reason I say that is because on the face of it, some of the overall economic and market stats look pretty good.
Real GDP—that is real economic growth net of inflation—peaked over 4% in the second quarter and is likely to finish out the year around 3 percentage points. The stock market, as we all know, is also having a good year. Now the 10th year of a bull market, one of the longest-running bull markets in history. So that's the good news—the headlines.
But when you look under the hood, there's a little bit to worry about and be concerned about. As you get into the finer details. For example, the U.S. economy, running at a 4 percent real GDP clip in the second quarter, far exceeds just about any other developed market and economy in the world—save maybe the developing market of China. So we are one of the few, if not the only, economies that are growing at a healthy clip. Most of developed Europe is running at about 1 maybe 2% real economic growth. Not as healthy.
So again, the economic growth, the recovery, the global economic recovery really doesn't exist to any real extent except in the U.S. Similarly, when it comes to the stock market and the financial markets, the U.S. is one of the few—and certainly the leading—stock market in the world year-to-date. Most of developed Europe and the Far Eastern stock markets are down. They're in negative territory year-to-date. The developing markets, the emerging markets, have lost on average 10-15 percentage points.
So the U.S. is one of the few, if not the only, stock markets showing a positive return year-to-date. And even within that, the U.S. stock market growth is very narrowly confined to a few sectors and even a handful of stocks. For example, it's really technology and healthcare stocks—the so-called growth sectors—that are showing well this year. They're up on average about 15-20%, representing the lion's share of the broader stock market indices. Without tech and healthcare, the broader indices would be flatter down this year. Within the tech sector, it's really the so-called FAANG stocks, if you're familiar with them. That's Facebook, Apple, Amazon, Netflix and Google. Those five tech stocks represent by far the super majority of the returns in the tech sector. Were it not for those five stocks, the tech sector would not be up very strongly.
This bull market and economic recovery is very narrowly defined to a few sectors of the economy and a few sectors of the stock market. Over the last 10 years, it's been pretty hard to lose money—certainly in the stock market or just about in any other asset class or investment class. It's very unlikely that is going to continue.
It just underscores the need for active stock and bond selection and active portfolio management going forward.
In the last six months, Federal Reserve monetary policy has shifted from tightening to pausing to potentially easing. Co-CIO Charles Tan explains why.
We believe this economy has enough labor fuel to keep expanding for another year or three at most given the current pace of job creation.
After a rough second half of 2018, we've seen a notable turnaround in 2019. How much longer can it last?
April 8, 2019
American Century Investments' CIO Rich Weiss nevertheless believes we're beyond the proverbial "bottom of the ninth" for the current bull market—and into extra innings.
November 19, 2018
Multi-Asset CIO Rich Weiss describes 2019 equity markets as likely having a split personality—one for the first half, and another for the second.
February 28, 2019
The opinions expressed are those of American Century Investments (or the portfolio manager) and are no guarantee of the future performance of any American Century Investments' portfolio. This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.
References to specific securities are for illustrative purposes only, and are not intended as recommendations to purchase or sell securities. Opinions and estimates offered constitute our judgment and, along with other portfolio data, are subject to change without notice.