Opinion: Here’s another sign the bull market is near a peak, and this one bears watching

The U.S. inventory market is nearing a high, in line with a number one indicator that’s based mostly on the trailing three-month returns of the S&P 500


Over the three months previous to previous bull-market tops, a reasonably predictable sample emerged of which sectors carried out finest and which fared worst. Presently, a rating of the sectors’ latest relative energy traces up pretty shut with that sample.

This can be a massive change since mid-Could when, as I reported, this main indicator was not detecting any indicators of imminent bother. The sectors with the most effective trailing three-month returns at the moment weren’t those who sometimes lead the market previous to tops, and the sectors with the worst trailing three-month returns weren’t those who sometimes lag.

Now, in distinction, there’s a distinct correlation between the sectors’ relative energy rating and the everyday sample that appeared in previous tops.

In accordance with analysis carried out by Ned Davis Analysis, Utilities, Vitality and Financials are the S&P 500 sectors which have carried out the worst, on common, within the remaining three months of all bull markets since 1970. As is obvious within the chart beneath, these three sectors now are at or close to the underside in a rating of trailing three-month returns.


In distinction, in line with Ned Davis Analysis, Client Staples, Well being Care and Client Discretionary are the sectors which have carried out the most effective, on common, over the three months previous to previous bull market tops. Because the chart exhibits, these three have carried out comparatively effectively over the previous three months.

To quantify how a lot the sector relative energy rankings have shifted in a bearish path, contemplate the correlation coefficients that I calculated. This statistic ranges from a excessive of 1.0 (which might imply that there’s a good one-to-one correspondence between a rating of the sectors’ latest returns and the historic sample) to minus 1.0 (which might imply a superbly inverse correlation). A coefficient of zero would imply that there is no such thing as a detectable relationship.

In mid-Could, this coefficient stood at a considerably adverse minus 0.66. At present, in distinction, it’s a constructive 0.67. This newest studying is without doubt one of the larger coefficients I’ve seen from my periodic monitoring of this indicator.

For sure, neither this (nor any indicator, for that matter) is assured to work. One time that it was correct was in April 2015, when my column on this indicator ran under the headline “leading indicators signal a market top.” A bear market started one month later, in line with the bear-market calendar maintained by Ned Davis Analysis. The correlation coefficient between the relative energy rating that then prevailed and the historic sample stood at 0.43; the present studying is larger and so much more bearish.

Mark Hulbert is an everyday contributor to MarketWatch. His Hulbert Rankings tracks funding newsletters that pay a flat payment to be audited. He could be reached at

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