Ok, so Goldman’s “Bull/Bear Market Risk Indicator” is sitting at its highest level since 1969, and because that sounds scary and also some semblance of authoritative, I guess it means I’ve got to feature it.
MarketWatch got ahold of the note that contains the latest update and analysis around this indicator and they ran a feature story on it today, but just for the sake of accuracy, the note was actually published on September 4 and the charts and excerpts MarketWatch cites are from a 54-page strategy paper called “Making Cents: The Cycle & the Return of Low Returns”.
It’s by Peter Oppenheimer and Sharon Bell, and they pen these lengthy strategy papers every so often. This latest installment is number 30. Here’s the chart:
(Goldman)
We’ve been over this before in these pages, most recently in March, when the indicator was sitting at 71%. Here’s a short history of this thing, excerpted from that linked post:
Back in September, Goldman built themselves a bull/bear indicator that rolls up several variables in an effort to effectively divine something about the risk of imminent turning points. Ultimately, they “discovered” that “many bull market peaks were associated with a combination of conditions based on 5 factors”:
- the labor market,
- growth momentum,
- valuation,
- term structure of the yield curve and
- inflation
There’s nothing particularly novel about their approach, but then again, there’s nothing particularly novel about anyone’s approach to trying to time markets and/or identify peaks because to the extent you actually discovered something that was truly unique and/or infallible, no one would know about it because you’d just build an algo based on it, hit “go”, and retire to the Swiss Alps.
Here are the latest readings on those five factors:
(Goldman)
So that’s what you’re looking at in the visual, and here it is plotted with 5-year forward returns:
