The bull market hit its ninth anniversary on Friday, making it the second-longest in U.S. history.
Don't bet on it reaching the age of ten. The caution lights are flashing.
It has been a remarkable run. On March 9, 2008 the S&P 500 hit a low of 676.53, marking a drop of about 50 per cent from its pre-financial crisis high. Since then it has pretty much all upside, with a few blips along the way. During that time, the index has more than quadrupled in value, making a lot of people very wealthy in the process.
There could still be more life left in this long rally. The longest U.S. bull market ran from 1987 to early 2000, when the tech wreck cut it off. Given the business-friendly tax and regulatory changes introduced by the Trump administration, this bull could still have room to run.
But the President is threatening to undermine its foundation with his almost gleeful push towards an international trade war, in the name of protecting American jobs. The steel and aluminium duties announced on Thursday were just the latest shot in a conflict that is on the verge of escalating out of control.
Mr. Trump and his protectionist colleagues appear to have set their sights on China as the next, and major, target. Beijing's response has been muted so far but if the President rolls out his big trade guns, expect the Chinese to fire back.
In the meantime, the European Union is looking at imposing selective tariffs on American imports valued at about $3.5-billion, targeting politically-sensitive U.S. states in the process.
Canada and Mexico have been exempted from the metals tariffs, but the President threatens to withdraw that exemption if the NAFTA negotiations fail. In other words, he's using it to intimidate his partners to cave on the most controversial aspects of the U.S. proposals.
President Theodore Roosevelt used to say about foreign policy: "Speak softly and carry a big stick". Mr. Trump has upped the ante. It's now: "Speak loudly and carry a gun."
I have expressed concern about a global trade war before, noting that the last time the U.S. went into protectionist mode, in 1930, world trade collapsed, and the Great Depression ensued.
I am concerned that we are have embarked on the same disastrous course once again. Many members of Mr. Trump's own party are also worried, including House Speaker Paul Ryan. He stated flatly last week that he disagrees with the President's tariff strategy and said it threatens to undermine all the positive business initiatives the Republicans have put into place.
So far, however, the markets are taking all this in stride, with the major U.S. indexes recording more gains on Friday. Either investors aren't taking Trump seriously (big mistake) or they don't think the negative impact of a trade war on the U.S. economy will be significant (potentially bigger mistake).
I would never go to the extreme of telling readers to sell all their stocks and run for the hills. But I think this would be a good time to add a little gold to your portfolio and to stash some money in a high-interest savings account or short-term GIC.
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Gordon Pape is Editor and Publisher of the Internet Wealth Builder and Income Investor newsletters. For more information and details on how to subscribe, go to www.buildingwealth.ca.
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Gordon Pape