The longest cycle

A decade ago started what is now called the great financial crisis of 2008. Since then, despite uncertainties and headwinds (including the fear of a US technical default in 2011, the European crises in 2010-12 and the emerging markets crisis in 2015), it is apparent that investors have been rather well rewarded for taking risk. Indeed, central banks have aggressively cut their rates, and then set up unconventional asset-purchase programs, and, more recently, fiscal measures have supplemented the panoply of support for the economy. In the end, it was mainly the financial markets which benefited from these measures. While the economic recovery in the US is the weakest since the end of the Second World War, the S&P500 recently celebrated its longest bull market for a century. Bond investors benefited from zero interest rate policies and central bank buybacks leading to unprecedented compression of yields. Equity investors, on the other hand, benefited from depressed valuations and strong earnings growth. However, the various stimuli have been removed or are in the process of being withdrawn, and beneficiary progressions suffer from less favourable base effects. Rates are higher, growth is weaker, and inflation is showing up … The best things come to an end.