Exactly When the Stock Market Will Peak, Revisited

At last year's Stansberry Conference in Las Vegas, my speech title was "Exactly When the Stock Market Will Peak."

My big takeaway was that the stock market peak wouldn't arrive until 2019 or 2020.

So far, so good... The Nasdaq Composite Index just hit an all-time high a few weeks ago.

Still, my prediction was a year ago. And while we're not at the peak yet, we're closer to it now than we were then...

Last week, I told you about this year's upcoming Stansberry Conference. So I thought today would be a good time to update you on my prediction for a stock market peak...

I had an important – but simple – reason not to worry.

The indicator that has predicted every recession and every major stock market bust in the last 40 years was not anywhere near a "danger zone" yet. It was not a problem – at all.

That was a year ago. Today, the story is starting to change...

Over the last 40 years, whenever this indicator crossed below zero on the chart, a stock market bust and a recession followed. And lately, it's been inching closer to "danger." Take a look...


This indicator fell below zero in early 2000, at the height of the dot-com boom... and the stock market crashed soon after. It fell below the line in 2006... and global financial crisis arrived not long after.

Today, it's threatening to cross below the line again.

So what is this indicator?

It's a simple concept...

It's the difference between long-term and short-term interest rates. You see, the chart shows the relationship between 10-year Treasury bonds and two-year Treasury bonds.

Normally, long-term interest rates are higher than short-term interest rates.

The thing is, the Fed (the Federal Reserve) controls short-term interest rates. But the free market decides on long-term interest rates.

When short-term rates rise above long-term interest rates, the Fed is raising short-term rates artificially high.

When that happens, the Fed is trying to slow the economy down. And history tells us that – time and again – the Fed is all too effective at this... When it pushes short-term rates above long-term rates, it has led to every recession in the last 40 years.

Now, to be clear, the Fed doesn't set the rate for two-year Treasury notes. But it makes for a more effective indicator... And it's sensitive to investor expectations on when the Fed will raise rates. When the Fed speaks, two-year Treasury notes move.

On Friday afternoon, the 10-year Treasury was around 2.85%. And the two-year Treasury was around 2.5%. The difference between the two is pretty tiny – and getting smaller by the day.

If the Fed keeps raising interest rates as it has promised to do, this indicator will turn negative again.

The sky doesn't fall immediately after that happens – based on history. But it does fall.

This is my favorite early warning indicator of a recession and a stock market crash.

So where are we today? We're getting close. However, this indicator hasn't gone negative yet... It hasn't even flashed a warning yet. Last year's call of a 2019 or 2020 peak still looks pretty good.

I'm not worried – yet. But we're a lot closer to the top than we were a year ago.

Good investing,


Further Reading

This early warning indicator has reliably predicted market tops – long before the crash. "The last three times the line has hit zero, it took more than 18 months for the stock market to peak," Steve explains. Learn more here: All Right, Mr. 'Melt Up'... So When Does It End?

Steve uses several early warning indicators to gauge the health of the bull market. Recently, he reviewed some of his other favorite signals. To find out what they've been saying lately, read more here: What the Early Warning Indicators Say Now.

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Market Notes



Extra Space Storage (EXR)... America's self-storage boom
Public Storage (PSA)... America's self-storage boom
CubeSmart (CUBE)... America's self-storage boom
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Madison Square Garden (MSG)... sports and entertainment empire
World Wrestling Entertainment (WWE)... pro wrestling
Costco Wholesale (COST)... membership-only bulk retailer
Ross Stores (ROST)... discount retailer
DSW (DSW)... shoes
Boston Beer (SAM)... Samuel Adams, Angry Orchard
Archer Daniels Midland (ADM)... food processing
Sysco (SYY)... food products
McCormick (MKC)... spices
Hess (HES)... oil and gas
Anadarko Petroleum (APC)... oil and gas


Walgreens Boots Alliance (WBA)... drugstores
Cardinal Health (CAH)... prescription drugs
McKesson (MCK)... prescription drugs
General Dynamics (GD)... "offense" contractor
American Airlines (AAL)... airline
Norwegian Cruise Line (NCLH)... cruises
Carnival (CCL)... cruises
IBM (IBM)... computers
Deutsche Bank (DB)... German bank