Is the US equity bull market run sustainable?

The 10-year anniversary of the Global Financial Crisis (GFC) has led to some investors raising questions over the length of the current US economic expansion as well as the strength of the US equity bull market, with many suggesting both are nearing their end.

Those concerns were highlighted on October 25 when US stocks fell into market correction territory following weeks of uncertainty over trade wars, weaker than expected global growth, fears of lower corporate profits and rising US interest rates.

Prior to the sell-off US equities were up 15 per cent year-to-date, with the S&P hitting a record high of 2930.75 on 20 September. The continued strength of US stock during the year was driven by late cycle stimulus for tax cuts and investor confidence that US trade will do better on the outcome of the current negotiations.

The boost from tax cuts helped US economic and earnings growth to cycle highs is diminishing. As a result, the gap between both US and non-US earnings growth as well as economic growth is likely to narrow.

Share buybacks (also boosted by tax reform) have additionally provided large and powerful buyers of US equities absent in other markets.

In the 5 previous bull markets dating back to the 1970s, US equities underperform non-US markets by 5-6 per cent on average during the final stages of the bull market. US equities have historically led in early stages of bull markets.

Citi analysts remain neutral US equities in our multi-asset class portfolios. Strong investor confidence in US markets may actually limit future returns and investors who have become highly concentrated in US markets should consider rebalancing and diversifying.