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Eleven Equity Danger Signals That Investors Should Pay Attention To
If equities suddenly crash, this can signify serious losses for investors. That's why you should pay attention to these eleven danger signals that can indicate a turning point on the equity markets.
Andrew Garthwaite, Head of Global Equity Strategy at Credit Suisse, recently published a study of the eleven most important indicators historically that regularly precede a turning point in the equity markets (A. Garthwaite, "Credit Suisse Equity Strategy: Stick with Equities"). What is interesting is that most of these indicators support an ongoing positive outlook for equity markets:
The Eleven Equity Danger Signals of a Stock Market Crash at a Glance
| Indicator | Current Score (0=low, 3=high) |
| High corporate leverage | 2.5 |
| Buybacks underperforming | 2 |
| Excessive optimism on tactical indicators | 1.5 |
| Wage growth at levels that threaten the 2% inflation target | 1 |
| Unemployment falls 0.5% to 1% below full employment | 1 |
| Clear-cut overvaluation against bonds or in absolute terms | 1 |
| Corporate over-investment | 1 |
| High probability of a recession | 1 |
| Credit spreads widen significantly | 1 |
| Earnings revisions deteriorate | 0 |
| Loss of market breadth | 0 |
Source: Credit Suisse
