Daily Archives: April 16, 2014

Market Surveillance — Bull Market Top Checklist

Wed, APR 16th, 2014

The enclosed table is from the folks over at Strategas Research. It is a Bull Market Top Checklist comparing where we currently stand against both 2000 and 2007. At Albion, we are in a constant state of analyzing every possible market data point we can get in order to assess where we are and where we are likely to go. And given the omnipresent chatter about market tops, bubbles and stretched valuations, I thought this summation insightful.

The list is quite comprehensive, though I would add a tenth line that reads “general excesses in economic activity”, which includes measuring levels in consumer behavior, private debt, “blind capital” flows [i.e. unrestrained speculation], ebullient sentiment and over-allocations to equities across the board [institutions and retail]. For now this box receives an “X.”

I would also place an asterisk [caveats] next to numbers 5 and 6. On rising real rates, some context is warranted. Indeed rates have moved higher, but off from an extreme [generational] low base. In the current environment stocks are unlikely to be threatened until the 10-year Treasury yield reaches north of 5%. In past bull markets there was very little wiggle room here, this clearly is not the case today. Regarding weakening upward earnings revisions, the macro backdrop has been marked by persistent fear and loathing over the trailing five year period. Upward revisions and optimistic outlooks have been scarce traits throughout the course of this bull run as corporate managers and stock analysts alike have had their hearts and minds locked onto unknown unknowns. This, coupled with averse appetites for risk, has created conditions where having an upward bias on anything does not pay. As far as new developments go that warrant attention this does not qualify.

Of course, forecasting market tops is more art than science. As a result this checklist is most useful as a guideline tool in which frame the current market backdrop. Through the lens of both history and the ingredients that typically, and in concert, form market tops I find this perspective noteworthy.

Jason L. Ware, MBA
Market Strategist, Chief Analyst
Albion Financial Group
(801) 487-3700; (877) 487-6200