UBS: The Bull Market Is Ending, Just Not Yet

The post-crisis U.S. bull market has now become the second-longest bull market since 1956. In a new report, UBS analyst Julian Emanuel discussed indications that the bull is nearing its end, as well as several indications that it’s not quite dead just yet.

M&A

Emanuel highlighted two key indicators that the bull market is now in its late stages. First, the M&A explosion in recent years is reminiscent of past market tops. He took the comparison to past tops one step further by adding that the recent merger talks between Pfizer Inc. (NYSE: PFE) and Allergan PLC (NYSE: AGN) are comparable to the massive mergers in past market tops, such as the AOL/Time Warner Inc (NYSE: TWX) merger in 2000 and the Royal Bank of Scotland Group PLC (NYSE: RBS) takeover of ABN-Amro in 2007.

In the past, these types of blockbuster deals in market-leading sectors have been indications of imminent market tops.

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Volatility

In addition, Emanuel noted the rise in volatility that U.S. markets have witnessed in recent months as a sign that the bull market is aging. “The cyclically high volatility regime which began in August is typical of the latter stages in bull markets; such volatility is often exacerbated by liquidation of elevated margin trading balances,” he explained.

Time To Sell?

Should investors be liquidating their long positions in preparation for the death of the bull?

According to Emanuel, investors shouldn’t pull the plug quite yet. UBS has yet to see indications of the level of rising investor inflows that typically accompany market tops. In addition, all major market tops in the past 25 years have been followed by the beginning of a recession within months of the market peak. UBS’s economics team also sees “little chance” of a recession in 2016.

Disclosure: The author holds no position in the stocks mentioned.

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