The current combination of improving global growth and rising profits at the same time as low inflation and interest rates is very favourable for share markets and explains why shares have continued to do well over the last year despite a seeming wall of worries (around Trump, North Korea, elections in Europe, the Fed, etc). This is commonly called the “sweet spot” in the cycle.
While corrections are inevitable the key signs to watch for an end to the sweet spot and increasing risk of a major bear market are: rapidly accelerating inflation pressures – with the US the main country to watch; high levels of capacity utilisation; excessive levels of spending or investment; excessive debt growth; and tight monetary policy.
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