Insights, Stock Market

The Day the Bull Falls

The stock market is not both art and science. While those dualing descriptions might work for architecture or even certain corners of computer science, the market is a different animal altogether. It is a sinewy, multiheaded beast that feasts on data and analytics, efficiencies and equilibrium which, given the digital world's propensity for mountains of binary-driven delights, has been a veritable smorgasbord for what has become the longest bull run in history.

However, as you might have heard a time or two, all good things must come to an end, even historic bull runs that have fattened 401(k)s and made even the most prudish of investors drop their stoic sensibilities. Given everything the world has thrown at it in recent years, though, it's become a bit of a challenge to find realistic scenarios that can stop this run in its tracks. Whatever causes it and whenever it occurs, Xinn is comfortable stating one notion with absolute confidence -- that penchant for data and analytical horsepower has forever changed the way our markets behave and the future is bright.

On that note, Xinn wants to put our soothsayer hat on for a moment and discuss what possible forces might come into play to end this seemingly endless run, along with the technologies that will continue to shape the global economy. Granted, a subdued market isn't the cheeriest of topics but, at some point, bears will replace bulls and those 401(k)s will slim back down. Through it all, however, technology will continue to propel commerce and evolve our markets towards the vanguard of efficiency it strives to be.

What Goes Up Must Come Down

Any discussion of market trends and the dynamics driving growth are naturally prone to talk of parties, partisan politics, and global affairs. Avoiding such minefields, however, Xinn foresees a handful of scenarios that are more independent of such dynamics and a product of the times, not an individual's personal opinions and persuasions.

First of all, it's important to view this bull market within the proper context. It was born from the ashes of the 2008 financial crisis, the epitome of a market low where trading essentially had one possible direction to move -- up. Likewise, the Federal Reserve and global monetary policy created extraordinarily fertile ground for market growth in reaction to the crisis. Unlike previous bull markets propelled by the tech and housing sectors, respectively, there isn't a particular segment driving this current run but, instead, a wide-sweeping swath of growth positively impacting nearly all industries.

So, given the difference between today's bull market and previous ones, what are the likely forces to throw a wrench into this stampede that has seen 320% growth thus far? Our best guesses aren't exactly revelatory and, in fact, fall very much towards the pedestrian side of the fence. Given the massive body punches this market has already absorbed, a downgrade of domestic debt and devaluation of China's currency being towards the top of that list -- we rightfully assume it will be one or a combination of the usual suspects to bring on the bears.

  • Global trade: Markets thrive on efficiency and as few artificial impediments as possible. A displacement in such efficiencies through an escalating trade war is certainly enough to put an end to the trading euphoria and cause everything to come crashing down to earth. Deadweight loss, whether stemming from monopolistic forces or trade tariffs and embargoes, is the proverbial kryptonite to the very efficiency markets need to thrive.

  • Inflation: Although the Fed appears to be hypervigilant in defending the robust economy from the dangers of inflation, and something especially toxic like stagflation isn't realistic relative to current metrics, inflation is particularly stealthy and can creep in from the darkest of corners. Despite the Fed's best efforts, real wages are actually in decline despite ample job growth when adjusted for inflation. This doesn't necessarily mean that inflation will ultimately be the Brutus to the market's Caesar but, at the very least, does indicate that inflation is alive and well, just searching for an entry point.

  • Natural causes: Bull markets don't really die from old age but, instead, from an economic cataclysm or just simply running out of fuel for the fire. At some point, labor markets slow, key indicators like housing starts and payroll metrics become less jubilant, and a bull market gradually realizes that its best days are behind it. Short of something truly catastrophic like a global natural disaster or complete implosion of foreign relations, death by a handful of natural causes appears to be the most likely culprit at this point.

The Future Is Still Bright

Despite the inevitability of the economic cycle and the corresponding market swings, all is not doom and gloom because, simply put, things are different now, and much of the credit goes to technology. Innovations like blockchain, AI, IoT, and on-demand manufacturing promise to shore up global supply chains and do a much better job of finding equilibrium points without the inefficiencies that have plagued commerce for millennia.

Predictive analytics driven by the powerful combination of big data and machine learning is already lending enterprises prescient abilities to foresee shifts in demand and make real-time decisions to counteract any potential pitfalls. From a more micro perspective, robotic process automation (RPA) is streamlining internal processes and functions that reduce redundancies and human error while allowing human capital to shift towards value-added roles that can innovate and spur growth.

In other words, despite the inescapable day the bull falls, Xinn can't help but have a hopeful outlook on the future of commerce. As we said, things are different now, better, and technology is at the root of that hope. Companies now have the tools to successfully navigate the crowded, often chaotic waters of the modern marketplace. Collectively, these tools provide firms with agility and foresight that were the fodder for industrial daydreams not so long ago. Remember this thought when markets go tumbling and headlines become apocalyptic -- this isn't your grandparents' market or economy, and that's a very good thing.

About the Author

Entrepreneurial CFO with 30 years of quantifiable achievement and extensive experience in financial services.

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