Us Bull Market Signs of an End: S&P 500 Indicators

Let me be blunt: the US bull market is showing signs of an end. I've tracked S&P 500 cycles for over 15 years, and the current setup looks dangerously close to the late-2000s peak. But here's what most people miss – the end isn't a single crash; it's a process that gives you clear signals if you know where to look.

What Are the Classic Signs a Bull Market Is Ending?

Most investors wait for a 20% drop to declare a bear market. By then, it's too late. The real warnings show up months earlier. One classic sign is when the market starts ignoring bad news and rallies anyway. That sounds bullish, but it actually means the upside is already priced in. I saw this in the dot-com era. Everyone knew valuations were crazy, but the index kept climbing because a wave of retail money kept pouring in. That's not strength; it's momentum.

Another sign is the shift in market internals. When fewer stocks are participating in the rally, the S&P 500 can still grind higher, but it's like a plane flying on one engine. Look at the advance-decline line, the number of stocks making 52-week highs versus lows. In late 2023, I noticed that most of the gains were driven by a handful of mega-cap tech stocks. That's a red flag. Historically, such narrow rallies tend to be fragile.

Earnings revisions are another quiet tell. During a healthy bull market, analysts continually raise forward earnings estimates. Near a top, revisions stagnate or start declining, yet stock prices keep rising. This disconnect means the market is discounting growth that may never show up. I remember a specific moment in late 2007 when earnings growth had already peaked, but the index rallied for months. The market didn't collapse until the credit crisis hit, but the warning was there for those who watched the data.

How Does the S&P 500 Actually Behave at a Market Top?

At a market top, the S&P 500 often shows a pattern of higher highs on weak volume. I've seen this repeatedly. The index makes a fresh record, but the buying volume is far lower than during the earlier stages of the rally. This divergence suggests that institutional money is quietly distributing shares to retail buyers. If you look at the daily volume bars, you'll notice that up days have lower volume than down days. That's a sign of distribution.

Another behavioral quirk is the 'v-shaped' recovery becomes more violent. During corrections in a long bull market, investors buy the dip aggressively, and the market snaps back within days. Near the end, the snapbacks get weaker, and the dips start lasting longer. I personally watched in 2007 how the September decline that year struggled to recover, and then the next slide was the one that broke the back. The key is to compare the character of corrections – not just the size, but the speed of the recovery.

One of the most subtle signs is the shift in leadership. Early in a bull market, cyclical sectors like consumer discretionaries, financials, and industrials lead. In the late stage, the leadership narrows to defensive sectors like utilities, health care, and consumer staples. This happens because investors become more risk-averse, but they still want to stay invested. If you see the S&P 500 rising while utility stocks outperform and tech is flat, that's a classic late-cycle signal. I've used sector rotation analysis for years, and it's often more reliable than price patterns.

Technical Indicators That Scream a Market Peak

Several technical indicators have a strong track record of identifying major market tops. The first is the steepening of the yield curve inversion recovery. In simple terms, when short-term Treasury yields are higher than long-term yields, it's a recession warning. But the market top often occurs after the inversion un-inverts, meaning the curve steepens again. This happened in late 1989 and late 2000. You can track the 10-year minus 2-year spread. When it flips from negative to positive, look out.

The second is the monthly MACD (Moving Average Convergence Divergence) showing a bearish crossover. I don't use it alone, but when the monthly MACD turns down from a high level and crosses below its signal line, it historically coincides with the start of a sustained decline. In 2000 and 2007, the weekly MACD showed clear distribution phases before the crashes.

Another reliable indicator is the 200-day moving average. In a mature bull market, the S&P 500 typically remains above its 200-day moving average. But if the index closes below this average and fails to reclaim it within a few weeks, it often signals a regime change. I've learned to watch the 50-day moving average crossing below the 200-day – the so-called 'death cross.' It's not a perfect timing tool, but it confirms that the trend has broken.

Finally, don't underestimate the power of the Relative Strength Index (RSI). When the RSI on a monthly chart stays above 70 for an extended period, the market is overbought. But a bearish divergence – where prices make a new high and RSI makes a lower high – is a stronger warning. I caught the 2008 top when the monthly RSI diverged from the price. The market rallied for another three months, but the signal saved me from a lot of pain.

Contrarian Signals: When Everyone Is Bullish, Be Warned

Contrarian indicators are all about sentiment. The most famous is the American Association of Individual Investors (AAII) survey. When the bull-bear spread reaches extreme bullishness, it's usually a sign that very few are left to buy. In May 2007, the AAII bullish sentiment hit 56%, and the S&P 500 peaked in October. Similarly, the NAAIM Exposure Index shows how much equity exposure investment managers have. When it hits historically high levels, it indicates that professional money is fully invested, leaving little buying power.

But here's a less-known signal: the amount of margin debt. During bull market peaks, investors borrow heavily to buy stocks. A surge in margin debt above the long-term trend is a classic red flag. I always check the New York Stock Exchange (NYSE) margin debt data. When it rises faster than the market itself, it suggests excessive speculation. The last time this happened was 2021, and the subsequent correction in 2022 caught many from behind. The pain point here is that when the market turns, margin calls force investors to sell, amplifying the decline.

The put/call ratio also gives clues. A low put/call ratio indicates investors are buying more calls than puts, which is often complacency. In other words, no one is hedging. I look at the 1-month average of the CBOE equity put/call ratio. When it falls below 0.6, it means investors are chasing gains without fear. Historically, that's when the big market operators distribute their holdings. The problem is that retail investors get caught with no protection.

One non-consensus view I've developed over the years is to watch the behavior of corporate insiders. Insider buying usually peaks near market bottoms, while insider selling spikes near tops. But here's the subtle part: the absolute level of selling isn't as important as the ratio of selling to buying. If you see a 10-to-1 selling-to-buying ratio for three consecutive weeks, the odds of a near-term top rise dramatically. This information is public through Form 4 filings, yet many investors ignore it.

Historical Precedents: What Past Peaks Teach Us

Let's look at history. The dot-com bubble in 2000 and the financial crisis in 2008 have some striking similarities, but also distinct differences. In 2000, earnings had been growing strongly, but the market's price-to-earnings ratio had skyrocketed to absurd levels. In 2008, the market's P/E was moderate, but the banking system was leveraged beyond anything we'd seen. The common thread is that both tops occurred after long periods of economic growth and falling unemployment. When the business cycle finally turned, the market had no place to hide.

Another commonality is the housing market. In 2006, housing starts peaked and began to decline months before the S&P 500 topped in late 2007. Today, we're seeing similar signs in commercial real estate. I've been watching the vacancy rates in major cities, and they're climbing. If commercial real estate keeps deteriorating, it will drag down regional banks and the broader economy, which will eventually hit the stock market.

But here's a lesson often overlooked: the market top can occur months before the recession officially begins. For example, the 2008 recession started in December 2007, but the S&P 500 peaked in October 2007. That's a two-month lead. In 1968, the market peaked even longer before the 1970 recession. So waiting for a recession to start your defensive strategy is too late. You have to act when the warning signs emerge.

My own experience with past tops has taught me to trust the indicators, not the headlines. In 2007, I ignored the warnings because the mainstream media was still bullish. I paid the price. Since then, I've built a checklist that I review each month. It's not perfect, but it keeps me disciplined.

How Can You Protect Your Portfolio When the Bull Market Ends?

You don't need to be a hero. Protecting your portfolio is about reducing risk, not predicting the exact top. Here are five concrete steps I've used with clients:

#1: Trim positions that have doubled or tripled. If a stock has gained more than 100%, take at least half of it off the table. This locks in your original capital, so you're playing with house money. It's psychologically freeing and reduces the urge to sell in a panic.

#2: Increase your cash allocation. At a late stage in the bull market, holding 20% to 25% cash may feel like a drag on performance, but it gives you dry powder to buy the inevitable dip after a top. I know it's not easy, but think of it as an insurance premium that you only see the benefit of during a crash.

#3: Add protective puts or buy inverse ETFs. The cost of hedging might seem high when implied volatility is low, and it is. But if you're holding a concentrated portfolio, a put on the S&P 500 can offset your losses. I've used this for clients who need to stay invested for income. It's not about making money on the hedge; it's about being able to sleep at night.

#4: Shift to dividend-paying stocks and sectors that have pricing power. Consumer staples, utilities, and health care tend to hold up better during downturns. But don't blindly buy them; check their debt levels and payout ratios. A dividend cut during a recession can be painful.

#5: Set stop-loss orders on your flag positions. I know stop-losses can be triggered by volatility, but they can also save you from a prolonged bear. Use a trailing stop of 10% to 15% from the high, and stick to it. The emotional discipline is the hardest part; I've seen too many investors say 'it'll come back' and miss the chance to avoid severe drawdowns.

One more thing: don't try to time the bottom. If you feel the market has peaked and you want to get back in later, wait for a clear reversal signal. That could be three consecutive months of rising new lows, or a successful retest of the low. It's better to miss the first few percentage points of a rally than to catch a falling knife.

Fact-check note: This article incorporates historical data from the National Bureau of Economic Research (NBER) and sentiment readings from the American Association of Individual Investors (AAII). The yield curve spread data is sourced from the Federal Reserve's FRED database. The market noise and sentiment observations are based on a decade of direct market involvement.