What’s the big deal?
In an interview with the AFR, James Swanson of US mutual fund giant MFS Investment Management says evidence is mounting we’re entering the latter stages of the current business cycle, “thereby making stocks vulnerable to a sharp correction when it does end.”
According to the article, he pointed to four signals that have put him on higher alert.
- Many smaller US companies are loss making.
- Margin lending in the US has run up to levels not seen since 1928. Billions of dollars were lost in the October 1929 stock market crash, the market’s fall exacerbated by margin calls.
- Many investment industry professionals have not lived through the business cycle, leaving them potentially ill-equiped to respond when it eventually does turn.
- There are signs the global economy is weakening, with manufacturing indices in France and Germany turning down. Although Mr Swanson says the US economy is currently booming, Mr Swanson says the tightening of interest rates by the Federal Reserve is already having an adverse effect.
What does this mean?