Heresy Financial: This Always Happens Right Before a Market Crash

Markets continue to hover near all-time highs. However, several market indicators are known as leading indicators. They can signal a shift in the economy before that move is apparent and the stock market sells off.

By understanding these indicators, and where they are now, investors can be well-positioned ahead of a selloff. While it may not mean avoiding an investment loss entirely, it can mean avoiding the bulk of a loss during a market downturn.

One indicator investors can look for is signs of market euphoria. Today, there are several indicators that measure the fear and greed in the market.

Currently, that reading is near neutral after stocks have been slowly grinding higher. However, at market peaks the reading may soar to over 80 out of a possible 100.

Another indicator is high stock market valuations. Investors have been watching Magnificent 7 stocks rally hard.

But their growing earnings and revenues are keeping their valuations stable right now. So it’s not fair to compare these stocks to the dotcom bubble that burst in 2000 quite yet.

A better recent example was the valuation in SPAC companies in 2021. Those companies were valued at multiples of revenues that they may not have even reached for several years. When valuations rely on a perfect future unfolding, an investment may be at an overly high valuation.

To see the full list of indicators that occur before a market crash, click here.