Five Charts: Stock Market Extremes “Are Measurable”

Today’s enthusiasm for the U.S. stock market is unrivaled in the past century. The gravest threat of all is when a mania begins to appear “normal.”

That said, the fantastical heights of this extreme are measurable. This condition cannot endure – but it can forewarn you of the coming crisis.

The five charts in this thread introduce the story.

Investors have been pouring money into bullish bets on the market at a dizzying pace. Small Traders recently pushed to a new record net long of $79.1 billion, a whopping 88% higher than the $42 billion reading of September 2021.

Divide the Wilshire 5000 by the U.S. GDP and you’ll discover “a first” in American history: The U.S. stock market is 2x the annual U.S. gross domestic product. In other words … the most expensive stock market ever.

This is Warren Buffett’s favorite indicator. No wonder Berkshire Hathaway has been raising cash. 

Tech stocks are stretched to the limit. Look at this chart of our Speculative/Conservative Ratio, which is the NASDAQ 100 index divided by the Dow Jones Utility Average. As you can see, optimism in the tech sector has reached new, unprecedented levels of lunacy.

We call this the “Pluto” chart – you don’t have to be an astronomer to get the point.

U.S. investors have reached “peak equity allocation,” or an all-time record 34.7% of financial assets allocated to stocks. Note the peaks in 1968, 2000, 2007, and 2021. Those peaks each stood near 30%. You see what followed each time: A devastating decline in prices. Will this time end differently?

Could investor optimism get even more ebullient? Such sentiments tend to proliferate at stock market tops. 

Almost exactly one year ago, the November 2023 Global Market Perspective made these forecasts:

Bitcoin: “Bullish reversal underway from 24901.” Then: $31,000. Now: $67,000

Gold: “Spot prices should rally above the May 5 high in the coming months.” Then: $2,000. Now $2,750.

MSCI Emerging Markets ETF: “This monthly chart of EMM provides additional anecdotal sentiment support for a major low.” Then: $36. Now $46.

Think how acting on these forecasts THEN could have changed how your portfolio looks NOW.

The most important report for global investors is scheduled to be published on Friday November 1st. Savvy investors can take advantage of this environment.

It’s important to us that you’re up to date before it arrives.

Get Up to Date Now:
Read the September and October Issues on Us

Subscribe now for $77/mo and get instant access to the September and October issues, at no charge.

Read them; get up to date; and we’ll alert you as soon as the November issue is ready.