A less aggressive posture from the world’s central banks, and moves by Chinese authorities to support economic growth, will assure a rebound in equities from the US to China, according to veteran economist Allen Sinai.
“With interest rates going to stay fairly low, as long as inflation stays low — that’s the big surprise, low inflation everywhere — you’ve got to be bullish on stocks,” Mr Sinai said in an interview with Bloomberg Television in Tokyo.
“The equity bull market will be back. It never left,” he said.
The swoon in stocks last quarter was essentially a recession scare, with investors sensitive to the fact the current economic expansion is unusually long, Mr Sinai said.
The US is on course by mid-2019 to have exceeded its longest upswing on record.
Yet, Mr Sinai, who has worked as an economist for more than four decades and has personally known US Federal Reserve chairs, says current conditions are more like those in the third or fourth year of an expansion, suggesting there’s plenty of room to keep going.
Technological advancements appear to be holding down price pressures, heading off the inflationary impulse that would otherwise have emerged thanks to tight job markets around the world, said Mr Sinai, head and co-founder of Decision Economics, in New York.
“They can afford to wait a long time now,” he said of the Fed and prospects for more US rate hikes.
China’s plans to lower taxes, in an effort to bolster growth and support consumption rather than exports, should pay off handsomely, the economist added.
“Tax cuts have worked every place they’ve been tried to stimulate growth. Markets know that,” he said.
As for the US, investors now appear to have got over their recession worries, Mr Sinai said.
The S&P 500 Index is up by over 4% since the start of the year, clawing back some of the 14% slide last quarter.
And US technology shares, which had, in recent months, hit record highs, have slumped.
The biggest recession threat probably comes from a sharp Chinese slowdown, which is why the recent policy moves there are so important, he said.
A hypothetical slide of two percentage points in Chinese growth would ripple through export-sensitive economies like Germany, Japan, and South Korea, and, in turn, hurt American companies.
When they then stopped hiring, damaging US consumption, the next recession would loom, he said.
For now, “we’re going to get back a lot of what we lost last year” in the stock sell-off, Mr Sinai said.
Looking out over the next six to 18 months at likely policy moves, “that’s very bullish for stocks,” Mr Sinai said.