Upside down world in this late-cycle bull market

Upside down world in this late-cycle bull market

20-08-2018 | インサイト

The past two years have been characterized by unusually high equity returns and low volatility. Cyclical stocks have also significantly outperformed defensive ones. But how long can this last?

  • Jan Sytze  Mosselaar
    Jan Sytze
    CFA, Director, Portfolio Manager

Speed read

  • Returns have been high, while volatility has remained low
  • Cyclicals have outperformed defensive stocks by a wide margin
  • Markets tend to revert to the mean, although timing is difficult

The current bull market in global equities is now well into its ninth year, making it one of the longest up-cycles on record. As US equity valuations recently matched 1929 levels, many investors have started wondering if this bull market could be on its last legs. Indeed, the last two years have been characterized by a combination of extremely favorable circumstances, that hardly seem sustainable.

Global equity markets have posted annual returns at levels that were almost twice the historical average. From 30 June 2016 to 30 June 2018, the broad MSCI AC World and MSCI EM Indices achieved annualized returns of around 15% and 16%, respectively. This is almost twice the expected and historical global average of 8% per year.

Of course, there were significant differences between the markets. Chinese stocks fared especially well, helped by the solid performance of index heavyweights Alibaba and Tencent. Meanwhile, European markets lagged somewhat, most notably non-euro markets such as the UK and Switzerland. But, overall, the rise in global equities has been relatively broad-based.

Almost bond-like volatility

At the same time, the level of market volatility has been only about half the historical average. In the 24 months between July 2016 and June 2018, the volatility of the MSCI World has averaged approximately 8%, which is low by any standard. At the end of 2017, the one-month rolling volatility even fell below 4%. Such a low level of volatility is normally associated with bond markets.

Historically, market volatility has been closer to 15% on average, although periods with substantially lower or higher volatility have been known to occur. Given that market volatility historically tends to revert to the mean, we think an extended period of extremely low volatility is improbable. From this perspective, the recent jump in market volatility in early February and late March 2018 could be a sign of a new period of higher volatility ahead.

Another important feature of the recent market environment is that cyclical growth stocks have significantly outperformed defensive stocks, which is not unusual in the final stages of a strong bull market. The most significant turnaround in the current bull market happened in July 2016, when cyclical sectors started to outperform defensive sectors by a wide margin.

This trend of cyclical stocks outperforming defensive, high-dividend ones has been quite consistent over the last two years. As a result, both the minimum volatility and high dividend factors have lagged the market by quite a wide margin, both in developed and emerging markets. Given these trends, it should come as no surprise that momentum has worked well, especially over the past 12 months.

Reassessing expectations

Timing the short-term direction of markets and factors is always a daunting task. But, given the strong performance seen in global equity markets over the past couple of years, returns are likely to be significantly lower and more in line with long-term averages going forward. And conversely, volatility levels are expected to rise substantially.

In this context, investors who subscribe to the ‘back to normal’ view might want to look forward instead of looking in the rear-view mirror, and make sure their equity positions are consistent with their own long-term expectations.


当資料は情報提供を目的として、Robeco Institutional Asset Management B.V.が作成した英文資料、もしくはその英文資料をロベコ・ジャパン株式会社が翻訳したものです。資料中の個別の金融商品の売買の勧誘や推奨等を目的とするものではありません。記載された情報は十分信頼できるものであると考えておりますが、その正確性、完全性を保証するものではありません。意見や見通しはあくまで作成日における弊社の判断に基づくものであり、今後予告なしに変更されることがあります。運用状況、市場動向、意見等は、過去の一時点あるいは過去の一定期間についてのものであり、過去の実績は将来の運用成果を保証または示唆するものではありません。また、記載された投資方針・戦略等は全ての投資家の皆様に適合するとは限りません。当資料は法律、税務、会計面での助言の提供を意図するものではありません。




商号等: ロベコ・ジャパン株式会社  金融商品取引業者 関東財務局長(金商)第2780号

加入協会: 一般社団法人 日本投資顧問業協会