Checklist - Market Top
It's never possible to pick the top, but knowing when to radically reduce portfolio risk would no doubt protect investor returns from large bear market draw-downs. We divide the tell-tale signs of a market top into four categories and list our most reliable checklist items under each.
- Central Bank rates have been tightening for a while now
- M2 growth has been slowing
- Senior Loan Officer Survey is net tightening.
- High yield credit spreads are rising.
- Jobless claims have started rising.
- Delinquencies rate has started rising.
- Corporate profits are falling.
- New building permits are falling.
- Economic cycle has reached the Late Cycle phase
- Recession model is flagging close to (or above) 70% probability of recession
- Yield curve (10yr - 1yr) is inverted.
- Stock market breadth is breaking down: there are only a small handful of stocks driving the market higher.
- Global stock market breadth is breaking down: only a handful of markets driving the MSCI higher
- Market valuation (market cap / GDP) is excessive relative to history
- Strong retail investor inflows have returned to the market
- Listed companies are buying back shares aggressively
- Luxury asset prices are making new records (i.e., art, wine, yachts)