Bull market in equities is coming back, Allen Sinai says

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,” Sinai said in an interview with Bloomberg Television in Tokyo. “The equity bull market will be back. It never left.”

The swoon in stocks last quarter was essentially a recession scare, with investors sensitive to the fact the current economic expansion is unusually long, Sinai said. The US is on course to exceed its longest upswing on record by mid-2019. Yet Sinai, who has worked as an economist for more than four decades and personally known Federal Reserve chairs over the years, 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 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 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. “Certainly by the second half of this year I think we’ll all be buying Chinese stocks.”

As for the US, investors now appear to have got over their recession worries, Sinai said. The S&P 500 Index is up 4.1% since the start of the year, clawing back some of the 14% slide last quarter.

The biggest recession threat probably comes from a sharp Chinese slowdown, which is why the recent policy moves there are so important, Sinai said. A hypothetical 2% point slide 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, Sinai said. Looking out over the next six to 18 months at likely policy moves, “that’s very bullish for stocks,” he said.

© 2019 Bloomberg L.P