What Causes the End of a Bull Market and Signals to Watch

Key Takeaways

• Pay attention to late-cycle warning signs like overvaluation, changing sentiment, and technical breakdowns, as these tend to group towards the end of a bull market. Put in alerts for critical support levels and follow moving averages to identify changes of momentum early.
• Track the economic indicators that generally move before markets do, such as accelerating inflation, increasing interest rates, decelerating consumer spending, and yield curve inversions. Build an easy dashboard to check weekly to monitor these trends.
• Use valuation and sentiment together to avoid false signals. Compare P E ratios to historical ranges and watch fund flows and speculative activity. Rebalance slowly if prices get a long way ahead of earnings growth.
• Employ a leveled toolkit mixing fundamentals, technicals, and psychology to distinguish noise from signal. Pay attention to persistent shifts in the data, not one-off headlines or sudden swings.
• Don’t wait for the obvious signs. Instead, seek out and monitor credit and liquidity conditions for early signs of stress, such as wider credit spreads, tighter lending, and evaporating volumes on trading. De-leverage and add defensives if liquidity begins to evaporate.
• Vest for volatility ahead of its arrival. Diversify, set transparent risk boundaries, and maintain a cash reserve for opportunities and emergencies. Set portfolio review meetings from time to time and change positions as warranted.

The end of a bull market marks the shift from rising asset prices to a sustained downturn, often after peaks in valuation and optimism.

Typical indicators are weaker market breadth, decelerating earnings growth, tighter credit, increasing real rates, and escalating volatility. Valuations compress as cash flow outlooks cool and liquidity thins.

Previous ones include 2000 and 2008, each with their own specific catalysts. To provide context, the following sections outline signals, time horizons, and actionable items.

What Signals the End of a Bull Market?

In late stages of the current bull market, price moves and behavior often stop moving in tandem. Look for clusters of stress across fundamentals, flows, and market trends as opposed to a single trigger.

• Extreme overvaluation in major indices and leading stocks
• Changes from greed to fear in sentiment surveys and flows.
• Breaks below key support and long‑term moving averages
• Widening credit spreads, especially high‑yield over government bonds
• Rising inflation and interest rates, and tighter policy signals
• Yield curve inversions across key maturities
• Sector correlations falling to multi‑year lows
• Earnings growth stalling while prices keep climbing
• Volatility regime shifts from calm to stormy

1. Economic Indicators

Inflation and policy rates first hit margins and valuations, then jobs. When central banks signal fewer cuts than priced or pivot to hikes, markets quickly reprice. Yield curve inversions have foreshadowed many slowdowns, so regard a persistent inversion as a warning flag, not a stopwatch.

Predominantly, weaker retail sales and softer manufacturing output signal the end of a bull market. Slowing new orders and falling export volumes typically emerge before GDP turns.

Other economic indicators can foreshadow profit stress, such as jobless claims that trend higher for weeks. Widening credit spreads, featured in 2011, 2015, and October 2018, signal more difficult funding and increased default risk.

2. Valuation Metrics

Compare index P/E ratios with long-run ranges. Check the mix: if a narrow set of mega caps carry all the earnings and multiple, fragility rises.

Market-cap-to-GDP near previous peaks can warn of excess. Price-to-book and price-to-sales charting far ahead of cash flow shows hope trumping math.

A wide gap between stock gains and flat or declining earnings is a standard late-cycle indicator. Recall that corporate earnings as a proportion of GDP declined after 2014 even as the S&P 500 approached its previous peak on that metric.

3. Investor Sentiment

Extreme optimism marks tops. Surveys that push into euphoric territory can turn from tailwind to danger. Historically, readings of deep pessimism, below roughly 41.5 on certain indicators, have been superior buying opportunities.

As do record inflows to equity funds and ETFs. If hedging demand drops simultaneously, complacency sets in.

We know spikes in retail trading, meme shares or thin-token crypto are late-cycle characteristics. Options markets moving from low to high volatility states indicated the changing tone.

4. Technical Patterns

A string of lower highs, double tops or head-and-shoulders in major indices signals buyer exhaustion. Sector correlations hitting lows, as in 2018, can indicate leadership fragmentation ahead of a break.

Breaks below the 200-day moving average and weekly 13-EMA crossing below 34-EMA indicate trend damage.

Watch volume: weak volume on rallies and heavy on selloffs. Accelerated swings and gap downs tend to lead to a more general leg down.

5. Corporate Health

Declining profit and compression margins indicate weakening pricing power. Negative guidance from bellwethers matters more than small-cap misses.

As debt rises and ratings slip, it increases the risk of default. High-yield pain tends to appear before equity weakness widens.

More layoffs, bankruptcies and covenant breaches indicate pressure on cash flows. Since 1981, those seller-dominated eras have brought back about negative 0.52 percent annually.

Cyclical sectors, such as tech hardware, finance, and housing, often bob over first, then the rest.

What Causes a Market Downturn?

A downturn typically indicates the late stage of a current bull market. It arrives when economic growth, confidence, or credit go out of balance, and small fissures expand into tension across prices, funding, and earnings.

1. Tight money and policy errors: When central banks raise policy rates or end bond buys, credit costs rise and risk appetite cools. Late 2018 demonstrated how hikes alone can jolt stocks, even without a recession.
2. Inflation shocks: High and sticky inflation, like in 2022, cuts real income and lifts discount rates, which pressures valuations and margins.
3. Asset bubbles and leverage: When prices outrun cash flows, a break can be swift.
4. Economic slowdowns: Weak GDP growth, profit slides, and job losses sap confidence. 2015 to 2016 delivered an earnings recession and a crisp mid-bull stumble.
5. Systemic failures: Faulty risk models, thin capital, or bad collateral chains trigger panic. The 2008 crisis demonstrates how rapidly a credit freeze can take down all assets.
6. Geopolitical shocks: Wars, sanctions, or pandemics disrupt trade and cash flows. Think about the COVID-19 shock in March 2020, which precipitated a fast-moving global selloff.
7. Bear market mechanics: A drop above 20% in main indexes can come from one cause or a pile-up of policy shifts, growth scares, or global events.

Central Bank Policy

Rate hikes raise loan and bond prices. Firms postpone projects, households cut back, and cash flows decelerate. What makes a market turn down? Central banks halt quantitative easing, liquidity dries up, and lower-quality borrowers are the first to sense it.

Policy language is important. When a bank hints at concern over inflation or “higher for longer,” markets reprice everything at once. Yields jump, growth stocks falter, and credit spreads expand.

Sectors that are debt-dependent get hit by higher funding costs. Real estate, autos, and small firms pull back. Share buybacks contract and earnings multiples compress.

Unintended consequences can bite. A rapid correction can ignite a liquidity spiral that includes margin calls, ETF discounts, or stressed funding markets that spreads stress long past that initial vulnerable node.

Geopolitical Shocks

Sudden conflict, sanctions or regime shifts nudge fear higher and forecasts lower. Oil and gas can spike, increasing input costs from shipping to energy. That squeeze dents margins and bubbles up inflation fears, which bounce back into rate expectations.

Capital tends to exit riskier markets, driving down their currencies and increasing their yields. Trade barriers or tariffs compound the shock, disrupting supply chains and slashing sales in export‑intensive industries. The net impact is less earnings clarity, financial conditions tightening, and a rapid de-risking reset.

Systemic Failures

Warning signs show up in banks and shadow lenders: thin capital, bad underwriting, and asset-liability gaps. A single big failure or a hedge fund blow-up can trigger forced selling. Disruptions in payment rails, clearinghouses or exchanges stall trades, freeze collateral and rattle confidence.

Derivative losses and margin spirals coursed through the system, just as they did in 2008 when credit markets seized. When pipes clog, price discovery breaks and even safe assets wobble.

The Role of Market Psychology

Market psychology drives the trajectory of a current bull market and when it ends. Behavioral finance demonstrates that mood, memory, and bias can move stock prices as much as information, influencing market trends and investor sentiment.

• Herd behavior and groupthink propel trends beyond fundamentals and then quickly reverse at stress points.
• Follow sentiment with surveys, volatility gauges, and trading volumes to detect turns.
• Look for denial and capitulation as milestones near the top and the breakout.
• Notice how historical crises contextualize current risk perceptions and risk-taking speed.

Euphoria

Overjoyed purchasing appears initially in sizzling edges of industry. What you get is razor-edge price gains in a limited group of stocks or sectors, and laggards get overlooked. Overconfidence and envy do the heavy lifting here.

Investors chase what worked last week and drive price charts near vertical. Media turn bullish. Headlines shout ‘new era’ and old rules don’t apply. That frame fuels faith that drawdowns are a dinosaur and that dips warrant immediate buying.

Our linguistic construction—discussing “angry” or “fearless” markets—fulfills a social need, making big, abstract shifts feel human and secure to track. Record-setting IPO waves tend to come at this stage. You observe speculative booms in new themes, such as early-stage tech in 2000 or property-linked products prior to 2008.

Valuation checks wash away. Momentum grabs the steering wheel, while algorithms may cheer it on by chasing transient signals and priming swings.

Denial

Denial begins when prices wobble. Investors dismiss bad news. Loss aversion causes them to rationalize weak earnings or tighter policy as ‘one-off’ and groupthink keeps the buy-the-dip habit going.

You observe new money continuing to enter the same names on early drops, and portfolios remain loaded up with winners because selling would mean acknowledging a mistake. Polls can still be optimistic when the VIX is climbing.

Volumes trade toward defensive hedges, but core holdings remain. They’re loath to rebalance or trim risk, anticipating a swift snapback as in prior rallies. The long shadow of previous crashes warps judgment. Some remember 2009’s rebound and figure history will rhyme. Others dismiss the 2000 and ’08 lessons that fundamentals do matter.

Capitulation

Capitulation comes when patience snaps. Prices drop hard for a few days, volumes surge, and indiscriminate selling pounds the good and bad stocks together. ETFs experience significant outflows, option premiums spike, and volatility indices explode.

Long term plans get abandoned as panic supplants any discussion of intrinsic value, and stories turn from ‘this time is different’ to ‘nobody is safe’. Panic can be cyclical. Sales hit stops, algos chase the move, and human fear intensifies.

A shared memory of 2008 breathes caution anew and sentiment surveys plunge into deep pessimism.

Interpreting Conflicting Signals

Bull markets, particularly the current bull market, don’t usually wrap up on one hint. Signals conflict, timing is off, and data frequently cuts in both directions. Instead, we try to temper each clue in context and give it odds, not pursue certainty.

Leading vs. Lagging

Timing is everything. Breadth breaking down first, such as when more than half of an index trades below its 200-day moving average, can alert you to an aging bull in advance of lagging data turning.

Watch for divergence: if most stocks drop while the index climbs on a few giants, leadership is thin and risk grows. The opposite can indicate a bottoming process.

Don’t rely solely on backward looking data such as unemployment or last quarter’s earnings. Add leading reads and price action out of the financials, which usually blazes the trail.

Noise vs. Signal

Daily swings can fool. One headline, a hot data print, or an earnings surprise can ignite sharp moves that dissipate by the close. Assume single-day jumps are noise until validated by follow-through in breadth, volume, and sector leadership.

Use simple, repeatable checks: multi-week trends in moving averages, rolling volatility for example, 20-day realized, z-scores on breadth, and event windows around policy meetings. VIX spikes get the attention, but a move in the VIX’s floor and trend tells you more about regime than a one-day pop.

Seasons can juice short-term bounces; history tells us some recoveries are momentary and not sustainable, so stay wary. Keep base rates in mind: only about one-third of corrections grow into full bear markets, which supports patience and sizing rather than panic.

An equanimous, quasi-contrarian approach assists—ignore the lunatic fringe, but wait for actionable confirmation.

Historical Context

| 2003-2007 bull | | Approximately 4.5 years | | — || Credit expansion and financials dominate |

| 2008–2009 bear lasted approximately 1.5 years | 57% | Credit shock, involuntary deleveraging |

| 2009–2020 bull | 11 years | — | QE era, multiple expansion | | 2022 bear | 1 year | 25% | Rate shock, breadth cracks

Patterns Rhyme, Not Repeat. Long bulls frequently conclude in the context of contracting breadth and credit tension. Bears frequently end when breadth recovers and credit steadies.

Follow length and intensity so today’s activity rests alongside previous stretches, not in isolation. Valuation is helpful, not determinative. Ultra-high valuations have come before tops and long climbs, so apply ranges with earnings quality, margins, and rate paths.

Beyond the Obvious Indicators

Markets don’t often roll over without whispering warnings ahead of time, especially during a current bull market. Underneath price charts, credit, liquidity, and institutional behavior often change before the headlines, reflecting broader market trends.

Credit Market Stress

Start with a checklist that you can track week by week:

• Credit spreads: watch investment-grade and high-yield OAS for steady widening.
• Defaults and distress: Rising default rates and more bonds trading below 80.
• Downgrades occur in clusters of cuts among major issuers, not just small names.
• Bank surveys indicate tighter lending standards and weaker loan demand together.
• Equity-credit gap: stocks up while credit spreads widen is a red flag.

They matter because downgrades and NPLs show stress before earnings do. Look closely at industries with significant refinancing requirements over the next 12 to 24 months. Rising policy rates and roll-over risk could turn small cracks into breaks.

Tight credit means less capital available for mid-size companies and private issuers. Beyond the obvious signs, keep an eye on new-issue volumes and the percentage of covenant-lite deals. When doors shut, the weaker balance sheets are more likely to be forced to cut or sell.

A pronounced disconnect between buoyant equities and deteriorating credit frequently anticipates drawdowns. It popped up in 2022, in the middle of the 2009 to current bull cycle, which continues to trend up. Remember, bear markets have accounted for 39% of history, secular bears average minus 64%, secular bulls 456, and credit frequently presages which door is opening.

Liquidity Evaporation

Drying liquidity turns small sell-offs into air pockets. Unexpected plunges in volume on top exchanges can be a sign of fading depth. It is harder to toss risk from hand to hand.

Widening bid-ask spreads and slippage on large orders let you know execution risk is mounting, especially in small caps and credit ETFs. Central bank actions, rebooting balance sheets, opening funding facilities, or expanding collateral menus, tend to target restoration of functioning, not prices, but they validate stress.

Funding markets are the fulcrum: watch commercial paper, cross-currency basis, and repo rates. A freeze there forces deleveraging and asset sales at bad levels. Thin liquidity can still amplify downside, even after the S&P 500’s real monthly average of daily closes set a record in September 2025. Robust prints don’t eliminate microstructure risk; they merely obscure it until they can’t.

Institutional De-risking

They’re institutions that move early when incentives shift. Follow pension, mutual fund, and hedge fund filings for lower net equity exposure, more cash, and tilts toward bonds or defensive sectors such as utilities and staples.

Forget gross and net leverage reductions, VaR cuts, and unwinds of crowded derivative structures. Public letters emphasizing ‘capital preservation,’ re-calibrated risk budgets, or delayed capital calls all suggest a change.

Place these signals in context: the cycle from 2009 has survived a 2022 bear and continues higher. Some argue a new secular bull has begun, yet history says big advances can coexist with stealth de-risking.

Demographics pull on flows. A rising elderly-to-45–54 ratio and higher elderly dependency ratio into approximately 2037 can nudge portfolios toward income and lower volatility. Where the 35–49 cohort outnumbers 20–34, spending and earnings fuel risk. When that balance tips lower, saving is leaner and streams more frail.

A Personal View on Preparation

To me, preparation is knowing what you own, why you own it, and how you’re going to act when prices decline during a current bull market. The conclusion to a bull market feels quick, but the grind begins well in advance, especially in a secular bull market. I believe in checklists, not headlines.

Build a diversified portfolio to reduce exposure to any single market downturn.

Diversification is the safety belt. I diversify risk across geographies, asset classes, and styles. That might look like broad equity funds across North America, Europe, and Asia, a slice of bonds, short and mid-term, a little bit in real assets, such as a global real estate or gold fund, and a cash slice for near-term needs.

To keep one theme from dominating, I set rough caps: no single stock over 5%, no sector over 20%, and no country over 40%. I blend growth and value, large and small, so I’m not betting on one narrative. When one door closes, another opens. That homogenized slurry is what prevents the mass from fracturing all at once.

Set clear investment objectives and risk tolerance before market turbulence hits.

Plan when your pulse is steady. Remember the objective, such as a house in 3 years or retirement in 25, the time horizon, and the maximum drop you can tolerate. I like one plain line: “I will accept a 20% drop without selling.

Add rules you can follow: add to a broad index if it falls 15%, pause new buys if job risk rises, and hold cash for any bill due in 24 months. This converts fear into action. It protects you from pursuing the latest hot trend that’s no longer right for you.

Maintain an emergency cash reserve to avoid forced selling during market crashes.

Cash is your armor. I keep 6 to 12 months of living expenses in an ultra-liquid location, such as a money market fund or short-term government bills. The amount varies based on employment security, fixed expenses and dependents.

On a steep decline, this pool of time prevents me from unloading long-term holdings at depressed prices. It allows me to purchase when things get less expensive, even if the headlines are dire.

Regularly review and adjust your investment strategy in response to changing market conditions.

Establish a review cadence, not a mood cadence. I check quarterly: valuations, earnings trends, credit spreads, and cash needs. I rebalance when any slice wanders 5 percentage points from its goal.

I cut back long winners, top off laggards, and refresh the schedule if life shifts—new town, new position, new objectives. Little, early repairs trounce giant, last-minute efforts.

Conclusion

Bull runs come to an end. Cycles change. Signals accumulate, then peril strikes. Rates rise, profit fades, credit tightens, breadth thins and hype gets loud. None serve up the entire story individually, but the combination does. To remain prepared, maintain a transparent playbook, not an instinct.

A straightforward strategy assists. Define sell rules before the stress comes. Trim to stops in gains of 10%. Rebalance on set bands, for example, 5%. Hold a cash slice for jolts, let’s say 10% to 20%. Try moves in small size first. Trust just a few signals and check them each month. Remember one piece of information that transformed your perspective and one that failed to do so. That routine slices through friction and dread.

To put this to work, choose two signals from above, establish your rules now, and conduct a one-month test run.

Frequently Asked Questions

What signals the end of a bull market?

Look for shrinking breadth, spiking volatility, faltering earnings, and tightening policy as key indicators in the current bull market. Inverting yield curves and widening credit spreads increase the risks for investors. When leadership compresses into a handful of mega-caps, market trends can indicate potential pullbacks.

What causes a market downturn?

Typically, pullbacks in the stock market come after tighter monetary policy, profit declines, rising unemployment, or credit stress. Geopolitical shocks and energy spikes can hasten frailty, especially in the current bull market, where sky-high valuations make markets brittle.

How does market psychology affect the peak?

Late-cycle optimism in the current bull market can obscure risk. Herd behavior, FOMO, and overconfidence drive stock prices past fundamentals. Once sentiment flips to fear, selling becomes self-reinforcing, making it crucial for investors to watch sentiment surveys and market trends to anticipate turning points.

How should investors interpret conflicting signals?

Focus on leading indicators and weight by reliability, especially in the context of the current bull market. Add it all up: macro data, earnings trends, breadth, and credit conditions. Establish limits ahead of time, and if signals disagree, shrink your position size, diversify, and wait for confirmation.

Which indicators go beyond the obvious ones?

To understand the current bull market, it’s essential to monitor credit spreads, funding stress, and yield curve shape, alongside market trends like advance–decline lines and sector rotation, as they indicate the health of the stock market.

How to prepare without overreacting?

Construct a strategy that accounts for current bull market trends. Rebalance toward target risk, inject defensive assets, and maintain a cash buffer. Apply stop-losses and scale in to navigate market pullbacks. Stress-test your portfolio to ensure it withstands economic growth fluctuations. Pay attention to your time horizon and quality, as preparation trumps prediction.

Featured Image Hans Eiskonen eiskonen, CC0, via Wikimedia Commons