The problem with these indicators is that, although they may indicate over- or undervaluation, they tell you nothing about
when a mean reversion will happen.
As Keynes famously said: "The market can stay irrational longer than you can stay solvent."
An indicator that does a pretty good job of signaling the "when" of a recession, and by extension the likely "when" of large market corrections, is yield curve inversion. It predicted the recession of early 2020 quite well, even with the external shock of the pandemic.
https://www.forbes.com/sites/leonlabrecque/2020/02/26/anothe...
From the perspective that somehow a reset of the business cycle has happened through government transfers (not exactly a sound assumption), watch interest rates, and in particular the relationship between the 2 and 10 year.
Should we start to see a rise in short-term rates, without a similar rise in long rates, watch out. You'll no doubt see a multitude of articles explaining how "this time is different." It won't be. And on top of all of that, we'll head into it with the most overvalued market in history.
As Keynes famously said: "The market can stay irrational longer than you can stay solvent."
An indicator that does a pretty good job of signaling the "when" of a recession, and by extension the likely "when" of large market corrections, is yield curve inversion. It predicted the recession of early 2020 quite well, even with the external shock of the pandemic.
https://www.forbes.com/sites/leonlabrecque/2020/02/26/anothe...
From the perspective that somehow a reset of the business cycle has happened through government transfers (not exactly a sound assumption), watch interest rates, and in particular the relationship between the 2 and 10 year.
Should we start to see a rise in short-term rates, without a similar rise in long rates, watch out. You'll no doubt see a multitude of articles explaining how "this time is different." It won't be. And on top of all of that, we'll head into it with the most overvalued market in history.