We are now more than six years into the greatest bull market in U.S. history.
Read that again. Despite the daily see-sawing of domestic economic data, ongoing debt drama in Europe and nonstop monetary policy easing around the globe, the markets have been on a tear. Still, the last seven years have not been a period of robust economic growth.
Some analysts may see that as a key to the bull market’s success. Bear markets tend to occur when no one expects it. They come when everyone is bullish and even cab drivers are offering stock tips.
There is no shortage of suspicion of this bull market. Many reasons exist, but the simplest is that the economy has not performed at the level that leading economists projected. The Great Recession was an economic shock causing massive economic contraction and a spike in unemployment. Government stimulus and extraordinary Federal Reserve intervention in the early months of the Great Recession stopped the bleeding, but these efforts have not fueled the robust growth that has occurred after more traditional recessions.
While the Great Recession was painful it did not create the mass dislocation of the Great Depression. Basically, the Government, through extraordinary means, delayed the pain — and tough decisions — until a time the economy would be able to better handle austerity, but keep delaying the austerity. There has been a feeling throughout that it is a story without an end. And it may be time to take the tough medicine put off for so long.
Suspicion of the bull is well founded. It is clear that artificially low interest rates maintained by the Federal Reserve have pushed investors into risk assets in general and the stock market in particular. There is also a feeling that there is a price to pay for maintaining a zero-interest-rate policy for so long but no one is quite sure what that is because it has never happened before.
Warning signs are abundant. But rarely do financial media vehicles dig deeper than the traditional headlines. Too often, we see stories about the impact of a Federal Reserve rate hike, one that was proposed years ago, and we still await. We hear about contagion brought on by Greece’s potential default and exit from the European Union, but the Bull Market carried on.
Instead, we have to look beyond the headlines and dig a bit deeper. For example, IPO levels are back to gushing levels, but 71% of them were unprofitable in 2014, according to UF’s Jay Ritter — a troubling figure that invokes concerns about the dotcom bubble. Leveraged buyout multiples are rivaling 2007 levels, reigniting concerns about the sheer volumes of debt assumed by companies to boost market share. These are issues that fall to the back page.
And we still think that we have to go even deeper than these to find a good assessment of what is happening today, and what it means to investors’ looking out over the next six months to a year.
We have collected 10 varied, data-derived, technical, cyclical and fundamental reasons why the stock market could be near a significant top and due for a material correction.
Most portfolio managers and traders rely upon combination of indicators before deciding on a direction. It is not that one particular indicator is showing something but that several indicators are lining up that builds confidence in a market call.
While our proposition here may seem negative in its tone, it is really not. We have not tied ourselves to the equity world perspective where up is good and down is bad. Markets move in both directions and it is just as easy — and valid — to go short as it is to go long.