Bull Market Signposts: What Happens Before S&P 500 Peaks?



Making good progress on the book, about 60-70% finished (I feel good about it). I wanted to pop out of hiding to share a few charts/tables that should raise your confidence levels that — despite media coverage to the contrary — we are not on the verge of collapse.

I want to direct your attention to the latest missive from Savita Subramanian, who runs the Equity and Quant Strategy group at BAML.

In response to repeated inquiries from BofA clients, Savita looked at numerous indicators that collectively suggest markets are topping. She observes it is less about the things investors tend to focus on — “technical analysis, geopolitics, behavioral finance and even skirt hemline trends” — and more about specific measures she tracks in sentiment, valuation, macro-economic areas.

The table above shows the major market peaks going back to 1990. These include July 1990 (1990-91 recession), March 2000 (dotcom top), October 2007 (GFC), September 2018 (Q4 20% drop), February 2020 (COVID), and January 2022 (525 bps of rate hikes in 18 months).

Over that 35 year period, the period prior to market tops were ranged from 50-90% of these indicators flashing red, with an average of 70% before prior market peaks. Savita notes:  “Today, 40% of the signposts we have found to be predictive have been triggered vs. an average of 70% before prior market peaks.”

For those whoa re worried about an imminent crash, her work suggest we are not there yet.

I prefer to think in terms of probabilities, not binary outcome predictions. A lower probability of an imminent crash and a higher likelihood of a continuation, despite occasional setbacks, of the ongoing secular bull market, is what this suggests.

But as prior history has taught us, all bull markets eventually come to an end. It might be premature to write this bulls eulogy just yet…




MiB: Savita Subramanian, US Equity & Quantitative Strategy, Bank of America (May 17, 2024)

Transcript: Savita Subramanian (May 21, 2024)


FAQs How do bull markets end?
Savita Subramanian
Equity and Quant Strategy, 14 June 2024


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