Kiplinger\'s Personal Finance - 04.2020

INVESTING

30 KIPLINGER’S PERSONAL FINANCE^ 04/2020

THE CURRENT BULL MARKET IS

the longest in history, but it

has had some scrapes along

the way. Some, such as the

August 2015 “f lash crash” in

exchange-traded funds, were

mere f lesh wounds. Others,

such as the late-2018 sell-off

driven by concerns over ris-

ing interest rates and a U.S.

trade war with China, drew

serious blood. Standard &

Poor’s 500-stock index slid

19.3%—just a hair above

bear-market territory (gen-

erally defined as a 20% de-

cline from a market’s peak).

“If it bleeds, we can kill

it,” Arnold Schwarzenegger

once noted. Okay, that’s not

accepted Wall Street wisdom,

it's a line from the movie

Predator, but the point

stands. The bull market is

mortal. Just because it has

survived every challenge

to date doesn’t mean that

investors shouldn’t keep an

eye on where things stand

compared with conditions

that have led to the demise

of bulls past. Overall, the

bull doesn’t appear to be in

immediate danger, but the

following factors are worth

watching.

THE ECONOMY

“Bull markets don’t die

of old age. They die from

fright,” says Sam Stovall,

chief investment strategist

at research firm CFRA.

What investors fear is

recession—a prolonged pe-

riod of negative economic

growth. About two-thirds

of bear markets occur

alongside recessions, with

the market peak tending

to precede the recession by

six to nine months. Because

consumer spending accounts

for some 70% of U.S. eco-

nomic growth, negative

trends for consumers signal

trouble, says Stovall. Con-

sumer confidence tends to

post year-over-year declines

in the run-up to recession;

housing starts have logged

a double-digit decline from

the previous year’s levels

within three months of

every recession since 1960.

➜ To d a y : Those aren’t the

only two recession indica-

tors, of course, but they are

two that point to current

economic health. Consumer

confidence rose 7.6% in Feb-

ruary over the same month

a year ago, according to the

University of Michigan Sur-

vey of Consumers. Housing

starts are solidly up from

the previous year’s levels in

the early going in 2020.

INFLATION AND THE FED

A worrisome sign for an

aging bull: inf lation, which

erodes consumer buying

What Kills Bull Markets

We don’t think this record run is over yet— but we’re watching these signs. BY RYAN ERMEY

STOCKS

ALEX NABAUM