The 11-year equity bull market is certainly getting long in the tooth, but several important indicators suggest we may not be at the end yet.
First, investors are selling stocks and buying bonds at extreme levels. The difference between inflows to global stock and bond funds is three standard deviations lower than normal, the lowest point since the data series began 15 years ago.
Historically, markets have experienced positive equity returns six months and one year after similarly wide divergences—specifically, after the difference between stock and bond inflows reached two standard deviations lower than normal. It’s possible that stocks became “oversold” at these times, and that investors running for the exits lowered the market’s collective expectations, setting a relatively low bar for a comeback.
Asset-class flows aren’t the only sign the bull market isn’t ready to top out just yet. Five market indicators that were flashing red at the top of the bull markets of 2000 and 2007 are not doing so now.