Everyone’s Worried About a Bear Market. Here’s How to Spot One.

The S&P 500 is trading at an all-time high, and the Dow Jones Industrial Average is closing in on one—and yet we know that every bear market is preceded by a record. So how can we be sure that concerns that this is just the top before the tumble are not real?

Citigroup strategist Robert Buckland helpfully keeps a bear-market checklist that looks at 18 potential signs that a bull market has ended, including measures of valuation, sentiment, corporate behavior, and credit-market strength. The checklist isn’t meant to be a timing tool, but rather help guide investor behavior during a selloff: Should you buy the dip or sell the rip?

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For the U.S. alone, the bear-market checklist has a reading of 7, thanks to its cyclically adjusted P/E of 31, among other factors. “We would also point out that the U.S. market looks most frothy,” Buckland writes. “We would certainly turn more wary of buying the dips if the red flags headed over 10.”

We’re not there yet, however. “Equity inflows would need to pick up, valuations increase and corporate activity accelerate before the BMC indicates end-cycle euphoria,” Buckland writes. “It is telling investors to buy the next dip, just as it told them to buy the last one.”

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