These days, investors are facing a mature bull market.
And many are afraid we’re in a bubble, says David L. Donabedian, CFA and U.S. CIO at CIBC, who finds the bursting of tech, credit and housing bubbles over the last 15 years has affected investors.
To help, remind people that “by virtue of [the market’s] duration and current valuations, [Canadian] equities are in the mature phase of a bull market,” he adds. “That means a more sober pace of advance, with a lot riding on the economy and monetary policy.”
In fact, Donabedian suggests that although North American markets have been stoked by unconventional monetary stimulus, valuations are middling relative to the long-term average overall.
He says, “Excessive valuations and hot IPOs in the social media and biotech spaces have been deflated [at the same time as] overall market[s] have advanced. This is an indication of rational, valuation-sensitive behavior.”
He also expects interest rates to remain well below average, and predicts the U.S. economy will continue to gain strength. “It’s been a long time coming, but the U.S. is showing its broadest base of health in almost a decade. We look for 3% or better real GDP growth over the next few quarters.”
Still, investors need to keep an eye on central bank activity across the globe since they’ve been a huge catalyst for equity bull markets.
“Liquidity is increasingly a global phenomenon,” says Donabedian. “Central bank policy will [still] be the most frequent source of market volatility.”