Are we approaching the top of the bull market?

There is no doubt that since Donald Trump was inaugurated as president of the USA investors have taken a more optimistic approach to the US economy. While some believe market outperform is in spite of Donald Trump others believe that his forward-looking policies, many of which are yet to be implemented, could be a game changer. However, some analysts believe we are approaching the top of the current bull market with an array of proposed mergers and acquisitions.

Well-known names

Qualcomm and Mattel are just two of the latest well-known companies in America to have been approached about a possible merger/takeover. While initial approaches have been rebuffed there is a growing belief that Mattel at least is now in play and the proposed merger with Hasbro could create a giant. Only a few years ago it would have been inconceivable to think that these two companies, to take just two recent examples, would be on the receiving end of unwanted attention from potential suitors.

Are we approaching the top of the bull market?
Are we approaching the top of the bull market?

There are many more rumours and counter rumours regarding mergers and acquisitions which historically tend to indicate that a bull market is running out of steam. Potential suitors seek to use market confidence to raise funds to acquire companies which may be experiencing short-term difficulties. When you bear in mind these are multibillion-dollar deals even just the slightest change in share prices and financing costs can have a major impact.

Are investors looking for reasons to sell?

It is also interesting to see some of the small to medium-size companies announcing profits which exceed even the most recent analyst upgrades. If we were at the start of a bull market these surprising profit announcements would most likely be used as a reason to buy the stock. At this moment in time even those which have beaten expectations by a significant amount are not racing away after their initial share price spike. This would tend to indicate that investors are more likely to sell into strength as opposed to buying on momentum.

Any reduction in short-term trading activity can also be another sign that the bull market has perhaps run its course. Many analysts have put forward some very strong arguments for a further
increase in the US stock market but are investors now begin to get a little concerned about some of the heady valuations?

Hope value

Only six months ago we were in a comparable situation where some share price valuations seemed optimistic rather than realistic. However, short-term economic performance and comments from the Federal Reserve offered support to these heady valuations. There is a growing consensus that share prices have now caught up with short-term economic performance and further significant economic growth from this point may be subdued. As a consequence, those who have significant paper profits from their short-term trading activities may well be looking to reduce their exposure.

In the background there is always the chance that Donald Trump could deliver on some of his more ambitious policies which could in theory improve short to medium-term economic growth. That may be a slim chance when you consider his recent gaffes but then again Donald Trump is a man who does nothing by the book and surprises on many occasions.

Leave a Reply