Trying to time the market can be dangerous, but there are certain signals that the professionals look for when trying to gauge future risk in stocks which could be helpful for regular investors to monitor.
Shazir Mucklai is a 23-year old, Goldman Sachs alum, who took investment banking and private equity and coupled it with an act for public relations. Shazir first debuted his book on Amazon when he was 16 and went on to become the youngest writer for Forbes at 17. Mucklai now represents over 200 celebrities, brands, and media production houses.
Imperium Group has served thousands of clients, including Game of Thrones, Emmy award winning singer Halsey, Matrix 4 and Schitt’s Creek. Mucklai helps clients scale product offerings, prepare for product launches and capital raises, and get featured in top outlets.
We turn to him for his advice on how to beware of a bull market:
- Using history as a guide, Bank of America Securities curated a “bear market signposts” list for clients to help gauge when stocks might be close to bear market territory.
- The list of 19 signals ranges from fundamental to sentiment-related indicators and uses data tracking back to 1968.
- In the past, when more than 80% of the indicators are triggered, a bear market has occurred.
- A bear market is when stocks fall 20% from their most recent highs.
Bank of America Securities curated a “bear market signposts” list for clients to help predict when stocks might be close to embarking on a bear market. The list of 19 signals ranges from fundamental to sentiment-related indicators and uses data tracking back more than 50 years.
Currently, 63% of the bear market signposts have been triggered, up from 47% in January. Since 1968, when 80% of the indicators are triggered, a bear market occurred, meaning stocks fell 20% from their most recent highs.
“Stocks appear to be pricing in more good news than bad,” Bank of America equity and quant strategist Savita Subramanian said in a recent note to clients.
The signposts list was almost triggered in October of 2018 when it hit 79%. The S&P 500 went on to briefly dip into bear market territory on an intraday basis following that signal, and suffered its worst December since the Great Depression. The Fed raising rates, as they did in 2018, is a trigger on the bear market signal list, as bear markets have always been preceded by the Fed hiking rates by at least 75 basis points from the cycle trough.
Bearish signs to watch
Currently, if investors buy a 3-month treasury bill, they will be getting a higher yield than if they buy a 10-year treasury note. This is not normal. Typically, the more long term the holding period of the government security is, the higher the returns. This is a bond market phenomena called the inverted yield curve, which is known to precede recessions and sits as one of Bank of America’s bear market sign posts.
Another indicator that is currently triggered is muted price reactions for earnings beats this season. Stocks are getting their thinnest rewards for beating Wall Street’s estimates on earnings since the first quarter of 2018 and the third lowest level since 2000, according to Bank of America.
