While the index continues to rise and volatility remains low, Bank of America acknowledges investor concerns about potential warning signs of a market top.
BofA analysts reviewed historical data to identify the most reliable indicators of the end of the bull market.
According to the bank, only 40% of these targets have now worked, compared with an average of 70% before previous peaks.
BofA identifies 10 key factors that have historically preceded market peaks with minimal false positives. These include overly optimistic sentiment, signs of overconfidence, high valuations, and signs of monetary tightening or credit restrictions.
However, the bank also recognizes that unforeseen factors may play a role, which are then resolved during the subsequent market cycle.
They reassure investors that some oft-cited concerns don’t matter much. For example, historically, periods of contractionary monetary policy when Fed rates were above the neutral rate did not necessarily prevent bull markets.
Likewise, the low should not be a cause for concern, as it may simply indicate a period in which a surge in volatility is coming.
BofA advises against trying to time the market peak. Their analysis shows that maintaining an investment usually outperforms trying to sell early. Although strategic sales 1-3 months in advance can limit the risk of loss, the long-term benefits of continuing to invest outweigh the potential short-term gains.
The firm emphasizes that time in the market is a valuable asset, with the likelihood of losses decreasing significantly as investment horizons increase.