Driven by the unexpected recovery of the US economy and the AI boom, this year's stock market has surged to record highs. The S&P 500 index (SPX) has risen more than 15% so far this year, and with the continuous growth of large technology companies, the Nasdaq index, which is dominated by technology stocks, has also surged about 20%.

Analysts are rushing to keep up with the market, even turning from bears to bulls at highs. However, despite the much higher stock market and valuations in the first half of the year, which have raised concerns that a correction may be imminent, Bank of America has not seen enough of the 10 classic signs of the bull market peak. Bank of America's US stock and quantitative strategy director Savita Subramanian wrote in a report last Friday:

"In recent weeks, we have seen a surge in bullish signals, which is typically a catalyst for the top of the S&P 500 index. Only four signals have been triggered, and on average, seven signals are triggered before the top of the bull market in the past."

She points out that her 10 indicators, including consumer confidence, credit pressure, and profit growth, are not the "holy grail" of predicting stock market tops. But when enough indicators are triggered, it means increased risk.

At present, four of Subramanian's 10 indicators have issued warning signals, and she advises investors to avoid panic selling. She also points out that many classic bull market peak indicators used by other strategists "sound alarming but say little".

The veteran strategist then warns that trying to time the market's entry and exit to avoid short-term losses is usually futile. "Staying invested typically outweighs panicking," she said. "For the S&P 500 index, time is actually on your side. The probability of a drop in the index in a given day is roughly equivalent to flipping a coin, but as the time frame lengthens, this probability drops sharply."

Here are the 10 signs pointed out by Subramanian for the top of the bull market:

1. Consumer confidence (triggered)

Before the bull market peaks, consumer sentiment often improves. Bank of America said the Consumer Confidence Index of the World Large Enterprise Federation typically reaches 110 or higher within six months after the market peaks, then falls along with the US stock market. The index reached 111 in January this year.

2. Consumers become bullish on the stock market (triggered)

Although the historical rise of the US stock market is impressive, consumers' expectations for stock market returns are usually quite low. When this changes, it may indicate a market top. Historically, when the Consumer Confidence Index of the World Large Enterprise Federation shows that the net percentage of consumers who are optimistic about the US stock market exceeds 20%, the market will peak within six months. This indicator was triggered in the spring, and currently, a net 23% of consumers are optimistic about the US stock market.

3. Bank of America's selling indicators

Contradictorily, when Wall Street analysts are extremely bullish on the stock market, this may be bad news for the stock market. In the past six bear markets, Bank of America's selling indicator, the average recommended allocation of stock portfolios tracked by analysts, has issued a "sell" signal within six months of the market peak, and the indicator is currently in the "neutral" range.

4. Long-term growth expectations

When analysts' long-term growth expectations for the S&P 500 index are more than one standard deviation higher than the five-year average, it may indicate that the market is about to peak. "When expectations are higher, the stock market is more likely to disappoint," Subramanian noted.

5. Increase in M&A activity

Subramanian explained that when M&A activity is more than one standard deviation above the 10-year average, it may mean that the market has reached the later stages of the bull market. M&A activity soared before the internet bubble in the 1990s, the global financial crisis, and even the bear market in 2022. Today, it is on the rise again, but still far below the threshold for triggering Subramanian's indicators.

6. High valuations plus high inflation

High price-to-earnings ratio (a common indicator of stock value) in addition to high inflation is a bad signal for the market. Since 1990, when the historical price-to-earnings ratio of the S&P 500 index plus annual consumer inflation rate is one standard deviation above the 10-year average, it has been an indication of a market peak 66% of the time. Currently, it is already 0.9 standard deviation above the average level.

7. Performance of 'expensive' and 'cheap' stocks.

Stocks with low price-to-earnings ratio (cheap) often outperform those with high price-to-earnings ratio, but this situation may change before the market peaks. In the six months prior to the seven market peaks in the past, low price-to-earnings ratio stocks have underperformed high price-to-earnings ratio stocks by at least 2.5 percentage points. However, even if value stocks perform less well than growth stocks this year, this indicator has not been triggered.

8. Yield curve inversion (already triggered).

When the long-term US Treasury bond yield falls below the short-term US Treasury bond yield, it may suggest a weakening of economic growth expectations and even a market peak. This dynamic is called yield curve inversion, which has occurred in five of the eight bear markets in the past. Since July 2022, the yield curve has been inverted for the longest time in history.

9. Credit stress indicator.

Bank of America's credit stress indicator measures credit channels, leverage, non-performing loans, etc. to determine the health of consumers and predict market peaks. In the five previous bull market peaks, it has dropped below 0.25 within six months three times, but currently it is at 0.39.

10. Increasing difficulty in obtaining loans (already triggered).

Before the market peaks, banks often tighten loan availability, a phenomenon known as credit tightening. Bank of America measures credit conditions through the Senior Loan Officer Opinion Survey, and with a net 16% of banks tightening commercial and industrial loans to large companies, this indicator is issuing a warning signal.