Investors know that the good times don't last forever, and the current bull market run is bound to end eventually.
Speaking to the audience at TheStreet's free October Trading Strategies round table, Kristina Hooper, chief global market strategist at Invesco, believes that the Federal Reserve poses the biggest threat to the now nine-year old bull market.
"I'd say my base case is solid economic growth, solid earnings growth through the next quarter, but I would argue that the risks are growing, and quite significantly, and my first risk of course is that the Fed could potentially choke off growth," Hooper said.
Hooper noted that former Fed Chairwoman Janet Yellen had a more cautious approach than her successor Jerome Powell does, and that fact makes the Fed an even bigger wild card.
"Im still of the opinion that the Fed may not raise rates one more time in December, I know that's certainly a minority opinion, but I think it's possible just given that there are some risks to the economic environment," Hooper said. "The other issue is the Fed isn't just using one tool, it isn't just hiking rates in the background, but a very powerful tool of course is balance sheet normalization."
To stave off a full-blown depression, back in 2008 the Fed began increasing its balance sheet to unprecedented levels. The Fed's balance sheet grew from $869 billion on August 8, 2007 to over $4.5 trillion last year. However, the central bank has been slowly unwinding its balance sheet, which is currently down to just over $4 trillion.
Hooper noted that quantitative easing was itself an experiment. So unwinding that experiment carries a certain level of risk that may be unprecedented.
"So it can be quite dangerous, and in fact, we're already seeing disruption, emerging markets are saying that it's creating a liquidity suck," Hooper said. "In fact the governor of the Reserve Bank of India wrote an op-ed piece in The Financial Times in early June, where he essentially wrote an open letter to the Fed saying, 'Hey, balance sheet normalization is causing problems in the emerging market space, it's sucking liquidity out."
Outside of the Fed, Hooper identified tariffs as the next biggest economic threat. She even sees the recent NAFTA agreement that the U.S. was able to cobble together as being bad for global trade relations in the long run.
"What it's doing is clearing the way for the U.S. to focus more and more completely on its trade war with China, and that one it's taking a very different approach to. It doesn't want to compromise, it doesn't want to make concessions, nor does China," Hooper said.
Watch the full roundtable here, presented by Charles Schwab: