Many investors once again buying the dip in equities on Monday will be thinking of the cyclical factors driving stocks: reasonable economic growth and falling interest rates, for example. Again, these are overcoming concerns about pockets of rich valuations.

But underlying such moves are also secular trends that can span several economic cycles, says Phillip Colmar, global strategist at Macro Research Board, the London-based multi-asset research company . On that basis, U.S. equities are in a 16-year secular bull market that began in 2009.

In a note published at the end of last week, Colmar listed the current secular tailwinds. A particularly important trend is what he calls "policy distortions" in recent decades, such as ultralow interest rates and fiscal boosts, that "have cut short recessions and extended expansion phases, by fueling leverage and bringing forward growth from future generations."

In addition, reductions in labor unionization, increased globalization, deregulation, lower corporate taxation and technological advances, have all helped the corporate sector to capture an ever-greater share of economic growth.

The problem, says Colmar, is that some of these trends are "now extended and/or cresting/reversing." Globalization is being challenged by the Trump trade agenda, for example, while a four-decade period of steadily falling inflation and bond yields is over. The latter "poses a material threat to those parts of the equity market with rich valuations," he says.

The important question for investors, therefore, is to what extent this secular bull market may be overextended, just as some of its supports fade. Historical context suggests traders need to be wary.

Colmar says the S&P 500 SPX, or equivalent, has since 1871 completed four secular bull markets and four such bear markets, with their magnitude and duration varying significantly.

But, as the following chart shows, the current bull run has left stocks very elevated relative to their historical trend line. This "provides a potential ominous warning about the road ahead," says Colmar. "Historically, after reaching such an extreme, returns in the subsequent decade have tended to be low."

Source: Macro Research

Source: Macro Research

Even accounting for a step-change in inflation-adjusted stock market trends following the Great Depression in the 1930s, real U.S. equity prices are still elevated and more than 1 standard deviation above trend, Colmar notes. A standard deviation is a statistical measure of how spread out a data set is from its mean.

All together, this means "nosebleed valuations are also becoming an increasing challenge for U.S. equities," says Colmar, with "measures of long-term valuation, such as the Shiller P/E ratio, show[ing] the U.S. equity market is now at historically frothy levels, which limits the scope for further upside."

Source: Macro Research Bond

Source: Macro Research Bond

So, what should investors do? The important thing to note, says Colmar, is that there is significant bifurcation in the market, with "substantially overpriced growth stocks (particularly megacaps) and still relatively attractive value stocks." He calculates that the inflation-adjusted growth stock index is now more than two standard deviations above the long-term trend for the aggregate U.S. market. In contrast, the U.S. value stock index is well below this trend line.

"Although relative earnings trends partially explain the divergence in price performance, relative P/E and price/book valuations highlight that U.S. growth stocks have fully discounted this advantage and are now extremely expensive versus their value counterparts," Colmar says. P/E refers to share price relative to earnings.

It is also the case that U.S. stocks overall are expensive on a 12-month forward P/E ratio of 23 times, versus a historical average of 17 times, whereas an index of global equities minus the U.S. trades at a forward P/E in line with its historical average of 15. In addition, MRB thinks the currently expensive U.S. dollar will weaken, making U.S. stocks less attractive to foreign investors.

"The secular bull run in U.S. equities that began in 2009 is extended, with many of the powerful tailwinds now fully discounted and in some cases cresting/reversing. While a bear market catalyst is still absent, current pricing implies a material deterioration in the risk/reward profile and a challenging decade ahead for equity returns," Colmar concludes.

He suggests global equity investors should diversify away from frothy areas of the U.S. market, though his preference within the U.S. is for financials, industrials, and healthcare. Globally, he suggests equities in the euro area, Japan, and emerging markets.