Strategy & economics

The chart that highlights the eerie calm of the longest US bull market

This alternative chart of the record bull market shows why some investors might be getting complacent.

24/08/2018

Duncan Lamont, CFA

Duncan Lamont, CFA

Head of Research and Analytics

Schroders

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This week, the US equity market1 set a new record for the longest bull market (period without a 20% drop) in history. There’s not much euphoria around, but in case anyone is tempted to get carried away, allow us to offer a sobering thought…

Have investors forgotten what it feels like to lose money?

Equity investing is risky. You can lose money, potentially lots of money. In economic and political terms, it is easy to see lots of risk out there. But equity markets have been behaving rather differently.

Last year was the first time in 35 years (which is as far back daily data allows) when there wasn’t a single seven-day period where US equities fell by more than 2%.

It’s a reminder of the calm progress made by shares last year. But it also raises the possibility that investors may have forgotten what it feels like to lose money.

This is not normal. I repeat. This is not normal. Investors need to beware of complacency or falling prey to “recency bias”, a common behavioural trap where the future is assumed to be like the recent past.

Risk means more things can happen than will happen. Just because you didn’t lose money last year doesn’t mean you can’t lose money this year.


1. We refer here, and in the chart below, to the MSCI USA index

This article is issued by Cazenove Capital which is part of the Schroder Group and a trading name of Schroder & Co. Limited, 1 London Wall Place, London EC2Y 5AU. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Nothing in this document should be deemed to constitute the provision of financial, investment or other professional advice in any way. Past performance is not a guide to future performance. The value of an investment and the income from it may go down as well as up and investors may not get back the amount originally invested. This document may include forward-looking statements that are based upon our current opinions, expectations and projections. We undertake no obligation to update or revise any forward-looking statements. Actual results could differ materially from those anticipated in the forward-looking statements. All data contained within this document is sourced from Cazenove Capital unless otherwise stated.

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