The Bull Market Decade (Almost)

This week the U.S. stock market bull run became the longest in history. How leaders should approach risk in this new normal.

What goes up must come down. Eventually.

For nearly a decade, the stock market has defied this law of financial gravity. This Wednesday (assuming the market doesn't crash) the current bull market will officially become the longest in U.S. history, so far lasting nine years, five months, and 11 days. And while economists have been predicting a market correction for the last few years, directionally there is little indication of a looming bear market or recession. “The rate of growth may be slower than in historical recoveries, but nevertheless still pointing north,” says Chad Astmann, senior client partner and global co-head of asset and wealth management with Korn Ferry.

Corporate leaders already have been reevaluating strategic priorities and approaches to risk in this new normal. Driven primarily by tax reform, organizations have repatriated offshore cash and put it to work via increased stock buybacks, dividend payments, and capital expenses, as well as equity sales or spin-offs and mergers and acquisitions. On the consumer side, Americans are saving the highest percentage of their income since the 1990s, which suggests an increase in spending could drive economic growth higher. The environment is such that, Astmann says, the most risk for leaders is in doing nothing and “missing driving return on investment and adding shareholder value while the playing field is still rich.” He says the next 18-24 months represent a window for organizations to invest in growth markets, build out new digital business models, and continue opportunistic and experimental dealmaking, among other strategic priorities.

Now is also a good time to reconsider recruiting and retention strategies, Astmann says. Low unemployment, rising demand for skilled workers, and other factors means the cost of human capital is rising. “CEOs and talent leads should ensure they are constantly finding ways to retain the most important talent,” says Astmann. “The cost of replacement is going up incrementally and the options to replace key workers in a downturn will be limited.”

If a downturn ever occurs, that is. The longer the bull market runs on, the higher the expectation that it will stop dead in its tracks. Looming obstacles for leaders to navigate include economic troubles in countries such as Venezuala and Syria, heightened trade uncertainty, increased inflation, and the pressure to increase wages. Those factors, coupled with the omnipresence of activist investors and social media holding organizations more accountable than ever before, complicate the risk-reward calculation for leaders. “CEOs need a clear strategy and process for determining risk,” says Dennis Carey, vice chairman and co-leader of board services with Korn Ferry. Experts says leaders shouldn’t let their own personal circumstances influence their risk-taking decisions, for instance, because their natural preferences may not be what’s best for the organization. Available and accessible talent is a major factor as well. Before a leader makes a move, he or she has to ask whether the organization has the workforce to pull it off. If it doesn’t or can’t acquire it, the risk, however well calculated, won’t add up.

One simple way leaders can prepare for a downturn is to bake flexibility into the budgets of each region and division for up to a 20 percent market correction. Pullbacks are inevitable, after all — lately that have been due to sentiment around geopolitics.

“Be cautious,” advises Carey, “helium only takes a balloon up so high before it comes down.”