The Bull Run Can Run For How Long?
Continue reading to know for how long the bull market could run. The stock market is in a bull run and the decade, in fact, has been very good to the buyers in the stock market. The earnings of companies are high and also are the GDP growth. The investment seems to favor the bull run. The inflation and unemployment rate is also very low.
But we all know one thing. The bull market does come to an end. When you look at past data and what the market has done in the past, it is very easy to analyze the market. But what the market is going to do in the immediate future is something that many are not able to figure out. The bull market, however, has to end.
The yield cure
The yield curve is considered to analyze the market. This is the relationship between the interest rate on the debt in the short term and the long-term debts. The debts that are about to mature in the near future should have a lower rate of interest and those that will mature in the far future should have a high rate of interest. This is because the buyers have to be compensated for inflation and the increase in risk. The further in time the buyer is capable of getting his principle the more is the inflation compounding.
The yield curve when normal is suited for the banks who would be borrowing in the short term and lending for along term.
The relationship, however, does not work out when the long-term interest rate is very low. The long-term rates are also not in control. When the long-term yields are low then this means that the investors are skeptical of the long-term growth and they are now ready to accept low yields for the bonds that are safe for the long term.
The bank could also increase the short-term rates. When the short-term rates are higher than the long-term rates then this is called an inverted yield curve.
What is the yield curve doing now?
The yield curve is now towards flat and it is headed towards inverted. When the yield curve gets inverted, then this is followed by a period of recession. When that happens, the bull market would come to an end. So when you see an inverted yield curve get prepared for the bull market to end.