The long stock market bull run has yielded juicy returns, but it will pay to know when it’s time to be more cautious

Lights in the dark: indicators that the bull run might be about to end include falling demand for loans, a drop in eurozone consumer confidence, and taxi drivers dishing out share tips

Despite an eight-year bull run, we remain very far away from the sort of popular enthusiasm for stock market investment that usually precedes a share price slump. For an example of how investor psychology fluctuates between fear and greed, driving equity values up and down, consider this observation from the shrewd stock picker Sir John Templeton: “Bull markets are born on pessimism, grow on scepticism, mature on optimism and die on euphoria.”

In other words, when the last pessimist — or “bear” — has become an optimist — a “bull” — there will be no buyers left to support share prices, let alone propel them higher. When sellers outnumber buyers, prices can only go down.

But even though markets are trading near record highs, the euphoria that defines the final stage of Templeton’s cycle still seems a long way off.

One indicator is the closure next month of Share Radio, Britain’s only specialist broadcaster for investors. Far from flocking to the station to hear about stocks, most folk never tuned in, turned on or dared to drop out of bank deposits.

Leaving the LSD enthusiast Timothy Leary to spin in his grave, I went in search of more sober analysis of what might happen next. Specifically, I asked several investment experts what signs would worry them that the current bull market might be running out of puff.  ……

……  Looking to the future, it is worrying when long-term bulls such as … Alan Steel predict a correction in the second half of this year. Steel, founder of the eponymous firm in Linlithgow, Scotland, has been poring over the charts and told me: “There is still scope for further rises until the summer, but caution is recommended after that.

“History shows that equity income funds ride out corrections better….”

Ian Cowie: Personal Account

Quote courtesy of The Sunday Times
Sunday 16 April 2017