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Market cycle still has steam, but it’s not forever

John Stopford sees a good chance for economic contraction in 2020 or maybe later.

While some money managers don't think the cycle is set to turn in the very near term, they say the year 2020 does look vulnerable.

Managers said they are looking for a catalyst to bring this cycle to an end, but cannot see one in the next year outside heightened volatility from largely political sources, such as the U.S. midterm elections in November.

But a little beyond that does look like a potential pressure point.

"For now, indicators which tend to deteriorate ahead of a recession continue to suggest that an economic contraction may still be some way off, mostly likely in 2020 or even later, with a fairly low probability suggested for a recession within the next year," said John Stopford, London-based head of multiasset income at Investec Asset Management, and manager of the Investec Global Multi Asset Income Fund. "This is comforting, because in previous cycles, equities have tended to peak only about six months on average before the downturn."

He thinks monetary policy changes by central banks, with moves away from quantitative easing and interest rate rises by the Federal Reserve, a "more likely catalyst to end the bull market sooner, especially with signs of stress already visible in a number of weaker developing economies. Having said that, however, policy changes so far have been gradual and limited and so it is probably too soon to expect these changes to undermine the equity market, especially with earnings continuing to rise," said Mr. Stopford.

The year 2020 is on other managers' minds as well.

"If one wished to worry, 2020 is probably the year to worry about," said Andrew Milligan, global head of strategy at Aberdeen Standard Investments in Edinburgh. "We know the U.S. economy is seeing a big fiscal stimulus (which is going) to support growth and debt — it will still be there in 2020 but not as large. If one wishes to put together a story about a slowdown in the U.S. economy plus the lagged effects of monetary tightening … you could certainly make the case that 2020 is a vulnerable year."