Abundant Signs of a Stock Market Near its Peak

By on June 11, 2014

bear marketThe stock market looks ripe for a fall. Lets take a look at some of the anecdotal and statistical evidence.

Ned Davis Research says legal insider selling by corporate executives is on the rise, signaling that executives think their shares are fully valued.

Market analyst and adviser Doug Short noted last week that the stock market is overvalued in the range of 51% to 85% when measured by price-to-earnings ratios and the lesser known Q ratio (total price of the market divided by replacement cost). Currently, against the S&P 500’s long-term regression trend, U. S. stocks are 2 standard deviations above the mean based on P/E, CAPE, and Q Ratio.

Junk bond spreads are at new bull market lows (350 bps), the lowest level since July 2007, according to Charlie Bilello, CMT.

The S&P 500 has risen for nearly 32 months without a decline of 10 percent or more, versus the average of 18 months since 1945, according to data from S&P Capital IQ strategist Sam Stovall. Additionally, the S&P 500 has spent 80 weeks above its 200 day moving average. The bull market is currently the second longest in the last 80 years.

And this from a Mark Hulbert article “Stocks are ‘dangerously overvalued,’ M&A deals suggest” posted at Marketwatch [link]:

At the current pace, M&A deals could reach $3.51 trillion this year, the most since 2007, according to data provider Dealogic.

It wasn’t a fluke that a surge in M&A activity coincided with that year’s market top, according to Matthew Rhodes-Kropf, a professor at Harvard Business School and an expert in the field. “Each of the last five great merger waves on record” — going back more than 125 years — “ended with a precipitous decline in equity prices,” he says.

While we may not be at the absolute peak, the signs are abundant that investors are accepting the promise of meager returns by taking on above average risks (especially in U. S. stocks which are particularly richly valued).

3 Comments

  1. Ben Prichard

    June 11, 2014 at 2:59 pm

    That’s a good start. Add to it all the cheerleadering guests on CNBC, Fix and Bloomberg and you have the ingredients for a major investing disaster.

  2. Swayze, Patrick

    June 17, 2014 at 6:41 pm

    Nobody puts Baby in a corner!

  3. Elmer T. Lee

    June 28, 2014 at 1:53 am

    I’m curious as to who would be putting new money into equities at these levels. Their rube quotient must be off the charts.

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