CHAPEL HILL, N.C. – A good chunk of the bull market’s excesses have been worked off, according to the “Single Greatest Predictor of Future Stock Market Returns.” And that’s good news.
As of midyear, this indicator stood at 44.8%, down from 51.7% at the end of last year. At the lows of the seven bear markets of the last 25 years in the calendar maintained by Ned Davis Research, the indicator averaged 37.1%. So of the 14.6 percentage point spread above this average that existed at the end-of-2021 value, 6.9 percentage points have now been worked off—or nearly half.
All this means that the bear market is doing its job. The absolutely essential role that bear markets play in the market cycle is bringing the market back down whenever it gets too far ahead of itself. And that definitely was the case with this indicator at the bull market’s highs at the end of last year, when it was tied for being the highest on record .