A lot of market commentators seem to just be waiting for the market to crash. The news media would love it, that's for sure.
Share market cycles don't necessarily have a lot to do with economic cycles, but it does seem like we are coming to the end of a bull market.
There has been a spate of merger & acquisition activity recently. The internationally-focused Westfield Corp Ltd (ASX: WFD) is being acquired, Mantra Group Ltd (ASX: MTR) is being acquired, Aconex Ltd (ASX: ACX) is being acquired, BWX Ltd (ASX: BWX) is a takeover target and Healthscope Ltd (ASX: HSO) is being fought over by two suitors.
The rising interest rates in America could have a bumpy effect on the global share market and our own. The interest rate has been decreasing over the past 10 years and 30 years. Now it's just starting to go up again.
I don't think a rise in interest rates is going to cause another GFC any time soon. We are only talking going from 1.5% to 3% over the next couple of years. In the context of the last 30 years, 3% is still low.
However, it is likely to bring back some shares to a more moderate level. It is also likely to make heavily-indebted businesses come under pressure.
If I were part of a management team I'd want to be lowering my net debt position as much as possible before I had to refinance my loans again.
The one area where I think some economists are underestimating the potential effect is saying that Aussie households only suffer marginal increases in household expenditure when a flood of interest-only loans turn into principal & interest. According to estimates, the expectation is that principal will cost some households an extra $7,000 a year. That doesn't sound marginal to most household budgets to me.
Foolish takeaway
Who knows when the next recession will hit? No-one can truly know, it's probably a waste of time to try to accurately guess. The key to ride out any downturns is to have a portfolio of quality shares and to hold a bit of cash to jump on any share opportunities.
