(Kitco News) – With U.S. equity markets trading near all-time highs and trading in the green for several years now, some investors are concerned a downturn may be coming.
However, veteran investor and Blackstone’s vice chairman Byron Wien thinks otherwise.
In a recent post, he said he wouldn’t be surprised to see stock markets remaining strong for the next few years.
“Based on my analysis, I think we will have a favorable environment for equities at least until 2019,” he wrote earlier this week.
However, he remains cautious, adding that he will be “watchful for changes in the conditions that brought me to that conclusion.”
U.S. stock markets have been on a tear, bottoming in March 2009 and on the rise ever since. The Nasdaq and the S&P 500 index hit new record highs Friday, last seen at around 6,491.70 and 2,516.80, respectively.
“Cycles usually do not last this long. We all know it can’t go on forever, but I believe we could continue on a positive course for both the economy and the market for several more years,” Wien said.
“Recent data shows the possibility of a growth slowdown but a continuation of the expansion. The slowdown, if it comes, may trigger a correction in the equity market, but…nothing more serious than that.”
To the long-time investor, the market can keep climbing for at least two more years before any downturn begins. His analysis is based on a few factors, including investor sentiment.
“I would also be concerned if retail investors were euphoric about equities as they were in 1999 or 2007. They are generally optimistic, but not excessively so, although earlier this year sentiment did rise to a worrisome level,” he pointed out. “Investors large and small are also leaning toward the defensive.”
Likewise, concerns over the Trump administration’s ability to push forward its agenda seem to have waned, he said.
“While the Trump administration appears to be off to a slow start on legislation, most investors believe that there will be a reduction in corporate taxes by the end of 2017 or early next year and other aspects of Trump’s agenda will be passed in 2018….
“My guess is that we will definitely see a tax cut, but probably not broad tax reform; continued deregulation, particularly in industries like energy and finance; and infrastructure spending, stimulated by rebuilding as a result of [hurricanes] Harvey and Irma. Most of this, however, will happen next year.”
As for North Korean leader Kim Jong-un, Wien said the market has begun to scale back its fears.
“He will never give up his nuclear arsenal, since he knows it will discourage any outside threats,” he wrote. “[W]hile Kim is impetuous, unpredictable, and even homicidal, he is not, as Tom Friedman has pointed out, suicidal.”
However, Wien added that the leader’s “harsh rhetoric and threats” are likely to continue.
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