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Market Top??

Symptoms of Bull Market Top

Financial indicators:

1.)  High trading volume – panic buying.

2.)  Substantial buying of equity mutual funds by the public.

3.)  Shiller PE¹⁰ at historical highs with a low market dividend yield.

4.)  Mergers & Acquisitions and IPO’s calendar very robust.

5.)  Widening credit spreads.

6.)  Numbers of stocks making new highs are in decline.

Mass Psychology:

1.)  Investors use any reason to buy.

2.)  Making money in the markets appears to be easy.

3.)  Investors can’t wait to read their portfolio statements

4.)  Public infatuation with highly leveraged speculations.

5.)  The media describes the economy and markets as goldilocks (or any other word describing perfection).

6.)  Known contrarian investors are bearish – are seen as out of step with the new realities – or simply appear to be stupid or crazy.

7.)  Annuities and savings accounts are seen as dead investments.

The last shoe to drop is widening credit spreads between investment quality bonds whether Treasury securities or investment grade corporate bonds compared to high yielding corporate (junk) bonds.  So far these current yields have not widen enough for that last shoe to hit the floor.

Be as that may be...long term investment grade bonds are now in direct competition with stocks especially the the S&P 500 index funds.  Simply put the S&P 500 index funds yield is 1.00% (VOO) as compared to long term investment grade corporate bonds at 5.47% (VWESX) will have stiff competition for compounding over the next 10 years. 

Will bonds at this juncture outperform stocks over the next 10 years??  Most likely the answer being yes, with valuations at nose bleed levels as markets regress back to their respective mean returns for stocks will highly likely underperform bonds.

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