Here's Why This Multi-Billion Dollar Portfolio Manager Is Worried About The Stock Market

Stock SectorMay 21, 20185min11
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Traders work on the floor at the closing bell of the Dow Industrial Average at the New York Stock Exchange on May 3, 2018 in New York. (Photo by Bryan R. Smith / AFP) (Photo credit should read BRYAN R. SMITH/AFP/Getty Images)

Everyone is wondering how long this bull market will last. The answer could be not much longer, according to one multi-billion dollar investment adviser . “I know that stocks can get expensive and stay expensive for some time, but these levels may not be sustainable,” says James Bruyette, founder of Sullivan, Bruyette, Speros & Blayney, LLC which manages $3.6 billion in assets. Here are reasons that further explains his thesis and let’s you know why he’s worried about the stock market at this point:

1. Central Banks Are Tightening

Bruyette is concerned that the easy money era from global central banks is coming to an end and that could hurt stocks. One of the primary drivers of this very strong 9-year bull market has been easy money from global Central Banks. That era is over and the U.S. Federal Reserve is raising, not lowering, rates. Bruyette pointed out that 10 of the last 13 rate hike programs initiated by the Fed have resulted in recessions and/or stock market downturns. He also noted that the Fed has a history of raising rates until it is “too late.” Hopefully, this time is different.

2. The Bull Market Is Getting Old

His second point is that this bull market is getting old by any historical measure. This bull market is already the second longest in history – on average, equity bull markets last ~5 years, and this one is more than 9 years old. Keep in mind, bull markets do not die just due to old age, but they do die. Bruyette noted that, “Since 1949, no bull market has ever seen stocks appreciate this much with so little economic growth. History shows us, on average, bull markets generate annual stock returns of 10-17% per year accompanied by 5-7% per year economic growth. This one has averaged 17% on economic growth under 4%.”

3. Valuations Are Getting Stretched

His final point is that the market is expensive when compared to it’s history. Valuations are an extremely important component investors look for to gauge the health of the stock market. After 9 years of moving straight up, it is hard to argue that the stock market is “cheap” right now. Instead, some people say the market is fairly valued while others say it is over-valued.

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