I've seen several business cycle / sector rotation models, all based on historical patterns. Yes, rising inflation/rates, low unemployment, and soaring speculative investment categories all mark a peak. However, these trends can go on for years (or weeks!) before the fall. Thus, those models that scared me slightly away from stocks at various times over the past 8 years yielded false predictions and cost me thousands.
The financial media made a buck off my clicks though.
Perhaps rather than predicting the date of a turn, we should think in terms of the markets' sensitivity to changes. As valuation and competition increase, and as economic slack and yield expectations decrease, investors need fewer and smaller reasons to go defensive.
At unemployment 7%, PMI 1.5%, and PE ratios around 12, for example, investors might as well go long. Expected yields are good enough to justify the anxiety.
At unemployment 5%, PMI 3%, and PEs around 25, what's the reward for taking inordinate risk? At that latter point, a small negative event such as a quarter with poor earnings could start the exodus. The chance of avalanche is highest when the snow is deepest.
It wouldn't surprise me if rising interest rates or an action by the volatile and arguably mentally ill Trump administration finally triggered the avalanche.
