Skip to main content

Relax, the stock market’s end isn’t nigh. (You’ve got a year or so)

Relax, the stock market's end isn't nigh. (You've got a year or so)

Briefing highlights

  • Analysts don’t see big market pullback
  • Markets at a glance
  • Toronto, Vancouver housing markets to boom: CIBC
  • Bombardier strikes C Series deal with EgyptAir
  • Euro zone economy expands 0.6 per cent
  • Home Depot profit beats expectations

Risky business?

A new look at the markets suggest we can all relax for a year or so despite the recent setbacks.

But then there could be trouble, Capital Economics warns.

Many observers have recently wondered how long the markets can go without a marked correction amid high valuations. They haven't necessarily said the end is nigh, but rather just wondered aloud.

Story continues below advertisement

As John Higgins and Oliver Jones see it, we've got a bit of time yet.

"Risky assets have come under some pressure for the first time since the summer, when they were rattled by rising tensions between the U.S. and North Korea," Mr. Higgins, chief markets economist at Capital Economics, and his colleague Mr. Jones, the group's markets economist, said in a report this week.

"Nonetheless, we still don't think that a major selloff is likely until 2019, given the economic outlook."

They weren't saying there won't be some give. Indeed, they projected that the S&P 500 will close out 2017 at 2,500, somewhat less than where it stands now, as they believe much of the "good news" on U.S. tax reform is discounted.

Not only that, the markets bounced back nicely from the earlier troubles over North Korea. At the same time, the latest gains in crude could soon retreat, at least somewhat, as long as Saudi Arabia and Iran don't go to war.

"Big falls in equity prices have mainly occurred in the run-up to, or during, recessions in major economies," Mr. Higgins and Mr. Jones said.

"With this in mind, we don't envisage a large correction in the S&P 500 before 2019, once cracks in the U.S. economy start to emerge," they added.

Story continues below advertisement

"We think that equity prices in much of the rest of the world will probably fall sharply then, too, even if economies there hold up better."

Bipan Rai, executive director of macro strategy at CIBC World Markets, agrees it's not all that simple as market players "shake their collective heads" and call for the top of the market.

"There's a difference between an equity market selloff and a period of consolidation," Mr. Rai said.

"True, the equity market is long overdue for a corrective move lower, but given the amount of global liquidity still circulating we have a hard time seeing how it will happen," he added.

"After years of central bank accommodation, we've yet to see a sustainable pick-up in goods and services inflation but we have more than enough asset price inflation in both stocks and bonds. Blame it on structural changes over the past decade, but unless we see central banks act quickly to remove this liquidity it's hard to see what will precipitate a sustained selloff in equities."

Political events, like a stalemate on tax reform, won't crush stocks, either..

Story continues below advertisement

"Neither will a potential conflict on the Korean peninsula or in Lebanon (did 9/11 or the wars in Afghanistan or Iraq ever lead to a bear market?)" Mr. Rai said.

"These are the sort of issues that generally lead to a short-term sell-off or consolidation as opposed to a meaningful correction. What is needed for a sustained sell-off is a substantial shift in market expectations that leads to a change in the assessment of the risks of return."

Those would be things like a sudden surge in global inflation or a spike in mortgage delinquencies in an overextended market.

Read more


Markets at a glance

Read more


Europe’s economies rebound

The euro zone and the wider European Union both recorded economic growth of 0.6 per cent in the third quarter, the statistical agency Eurostat reported today.

It's the second reading of third-quarter gross domestic product.

Read more



More news

Streetwise

Insight

Inside the Market

In case you missed it

Report an error Editorial code of conduct
Comments

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed.

If your comment doesn't appear immediately it has been sent to a member of our moderation team for review

Read our community guidelines here

Discussion loading…

Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.