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After a spectacular world equity markets rally which started from US markets in 2009, the trillion dollar question now before the world is whether the US equity markets would be bullish or bearish in 2017. We have to remember that President Obama came to power in January, 2009 which was after a heavy bearish market in equity in US and worldwide.
President Obama with help of Fed took care of markets and the interest rates started to decline worldwide. World equity markets led by US Nasdaq and Dow started going up. This rally was totally unexpected and majority of technical analyst could not play it. With interest rates coming down, the yields were down, giving rise to a big move up in bond markets.
Now President Obama term is coming to an end and soon the new US President Donald Trump would take over. The big billion dollar question is how are equity, commodity and currency markets going to react to it.
The markets are not ready to fall though they do take a small correction but they again rise, proving all bears wrong. How long can the rally continue.
Top 10 Risks to the Equity Bull Market.
- US President Election. There will be a change of guard from Democrat President Obama to Republican Donald Trump in January, 2017. For a change the Democrats would be having a majority in both houses also. It will be seen how Trump is able to take care of growth as well as inflation which in turn would effect bonds and stocks.
- Fed Tightening has to start. Interest rates cannot just keep going down, they need to come up. Now what happens when they start increasing, well, the bonds will surely start coming down, corporate interest borrowing will go up, equity markets would certainly come under pressure. Bonds are already facing a bearish trend.
- Brexit. UK withdraw from EU has still to play on markets. Any friction among members there would certainly have a bearish effect. It would not be easy for Britain to come out of European Union without big turmoils.
- Corporate earning go for a toss. Corporate earnings would have to be seen once the interest rates start going up. Till now they were enjoying money at reduced costs. Certain geopolitical safeguards for saving their own economy from outside threat is also giving rise to protectionism which might derail the various world economies which in turn could bring the equity markets down.
- Central Bankers will need to roll back on quantitative easing as there is a limited scope of it now. They cannot go in for more bond buying or easing.
- China has grown and is likely to be hit hard. Trump policies have to be seen in context of China economic policies.
- Geopolitical tension on the rise. India Pakistan, ISIS, Syria, Iraq,Moscow, China. In a bull market, these things are overlooked but when markets turn bearish, such tensions give rise to further fall. Europe is another soft spot due to immigrant problem. There is a huge problem of refugees world wide.
- Inflation is likely to go up as people have a more buying power due to heavy flow of money due to low interest rates.
- Cyber crime might increase.