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Finance & Markets · Global

Several market indicators flash warnings, but a crash is not certain

The Motley Fool says several stock-market warning indicators are flashing at once, but argues they do not establish that a crash is imminent. Its account cites a reading of 40.5, alongside historical patterns involving market declines, Federal Reserve rate-hike cycles and rising margin debt.

AI-assisted synthesis · Based on 4 independent reports from 5 outlets · Article text read from 1 of 4 reportsHow it's made

View timeline · 8 entries
5 outlets2 regionsLatest reporting 3 min read
Coverage: Mostly CenterL 0 · C 4 · R 1

What happened

Key facts

  • The Motley Fool article and AOL headline pose whether the warning signs mean a crash is imminent.
  • The article says the market has historically corrected, defined there as a decline of 10% or more, roughly once every 18 months (per fool.com).
  • The article says the market has historically entered a bear market, defined there as a drop of 20% or more, about once every six years (per fool.com).
  • The article says the indicator was last above 40 in late 2021, before the 2022 rate-driven bear market (per fool.com).
  • Data from Fundstrat Global Advisors cited by the article show the market declined five out of six times when margin debt rose at least 45% year over year since 1960 (per fool.com).

The brief

Several indicators are flashing warnings about the stock market, but The Motley Fool says their simultaneous appearance does not establish that a crash is imminent. The article’s central point is that the signals measure different things, so investors should not treat them as one definitive forecast.

It suggests using the indicators to think about portfolio preparation for possible market declines. The article describes a market correction as a decline of 10% or more and says such declines have historically occurred roughly once every 18 months. It defines a bear market as a drop of at least 20%, which it says has happened about once every six years.

Those are historical averages, not a schedule: The Motley Fool cautions that market declines do not arrive at those precise intervals. One indicator discussed in the article currently stands at 40.5, which it calls its second-highest reading in 150 years.

The article says the same indicator last exceeded 40 in late 2021, before the 2022 bear market that it characterizes as rate-driven. It also notes an earlier instance in which the indicator was above 30 in 2018. A separate historical pattern concerns Federal Reserve rate increases.

The Motley Fool cites LPL Financial data showing that the S&P 500 declined during five of the six rate-hike cycles covered, including the 2022 cycle. That record links rate-hike periods with market declines in most of those instances, but it does not make every cycle identical.

The article also cites Fundstrat Global Advisors data on margin debt, a measure it connects to another warning signal. Since 1960, the market declined in five of six instances when margin debt had surged by at least 45% year over year. The cited pattern is historical and does not establish that a decline must follow every such increase.

Taken together, the indicators raise questions about the possibility of a market downturn while pointing to different historical relationships. The Motley Fool’s practical conclusion is to prepare a portfolio for what could come, rather than read the warning signs as proof that a crash is imminent.

Its account does not identify a specific future market move or give a timing forecast.

Why it matters

  • Investors face the practical question of how to prepare portfolios for possible declines; the article distinguishes a 10% correction from a 20% bear-market drop.
  • The indicator reading of 40.5 is described as its second-highest in 150 years, a historical signal the article places alongside—not as proof of—a coming crash.
  • The cited records connect declines with five of six Federal Reserve rate-hike cycles and five of six episodes of margin debt rising at least 45% year over year.

What to watch next

  • Whether the indicator discussed by The Motley Fool remains above 40; the article notes its previous reading above that level was in late 2021.
  • Whether the market declines during a future Federal Reserve rate-hike cycle; the article cites declines in five of the six cycles covered by LPL Financial data.
  • Whether market declines follow future episodes of margin debt rising at least 45% year over year, the threshold in the Fundstrat Global Advisors data cited by the article.

How it's being covered

Coverage analysisShow details
5 source articles · 5 unique outlets · 4 distinct reports
Outlet political mix: Mostly Center· 4 Center · 1 Right
Where the outlets are based: US/Canada 80% · Europe 20%
Outlet political mix
Mostly Center
Left
Center
Right
0 outlets
4 outlets
1 outlet
The marker shows coverage balance: each unique outlet counts once.
Geography
Where the outlets covering this story are based.
5 unique outletsDominant coverage: US/Canada
Coverage imbalance
  • Coverage is currently concentrated among Center-rated outlets (4 of 5 rated sources); comparatively few Left-rated outlets have published on the event.
  • Coverage is currently concentrated among outlets based in US/Canada (4 of 5 geographically-identified sources).
How we measure coverage

How outlets' accounts compare

Updat3 does not yet have enough full reports to compare how outlets framed this story.

Timeline

Developments from this story's sources, dated background we compiled and fact-checked, and our earlier coverage. Each row says which.
  1. The U.S. stock market crashed, preceding the enactment of federal rules on securities credit.
    Background · compiled and fact-checked by Updat3
  2. Congress passed the Securities Exchange Act, giving the Federal Reserve authority to set limits on credit used to buy securities.
    Background · compiled and fact-checked by Updat3
  3. The Federal Reserve cut its federal funds rate target to 0%–0.25% as the COVID-19 pandemic disrupted economic activity.
    Background · compiled and fact-checked by Updat3
  4. The indicator cited by The Motley Fool last rose above 40 in late 2021.
    Background · compiled and fact-checked by Updat3
  5. The Federal Reserve began raising its target federal funds rate.
    Background · compiled and fact-checked by Updat3
  6. The S&P 500 entered a bear market after falling 20% from its January peak.
    Background · compiled and fact-checked by Updat3
  7. The Federal Reserve raised its federal funds rate target to 5.25%–5.50%.
    Background · compiled and fact-checked by Updat3
  8. The Federal Reserve cut its federal funds target range by half a percentage point, to 4.75%–5.00%.
    Background · compiled and fact-checked by Updat3

How we got here

The S&P 500 entered a bear market in June 2022, after falling 20% from its January 3 peak, and reached its low on October 12. The Federal Reserve began raising its benchmark interest rate in March 2022, ending the near-zero-rate period that had begun in March 2020.

The Motley Fool later described an indicator as last having exceeded 40 in late 2021, before that 2022 bear market; Fundstrat Global Advisors’ historical data, cited by the publication, found declines in five of six instances since 1960 when margin debt rose at least 45% year over year. Margin borrowing is a longstanding feature of US stock trading.

Original sources

5 articles from 5 outlets

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