The 7investing Podcast

Predicting Market Downturns with YCharts' Connor Kitko


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Most of us don't need any more reminders that 2022 has been a rough year for us as investors. But more intriguingly, would it have been possible to see the downturn?

For years, researchers and analysts have looked to predictive indicators as a way to foresee broader market selloffs in advance. While the market does often exhibit cyclical behavior, it's hard to say that history perfectly repeats itself. Each economic cycle is unique, making it difficult to compare apples-to-apples to those before it.

However, perhaps there are indeed a few warning flags that investors could benefit from tracking. And those are exactly what we went hunting for in today's 7investing podcast.

In today's show, 7investing CEO Simon Erickson speaks with YCharts Director of Product Marketing Connor Kitko. YCharts recently published a white paper entitled Which Leading Indicators Best Predict Market Declines? In it, Connor takes a closer look at seven indicators that have been used to predict stock market selloffs:

  1. S&P 500's P/E Ratio
  2. S&P 500's cyclically-adjusted P/E Ratio
  3. S&P 500's Earnings Growth
  4. "Tobin's Q" Score
  5. 10-2 Year Yield Spread
  6. 10 Year - 3 Month Yield Spread
  7. The "Buffett Indicator"
  8. In the conversation, Simon asks Connor to describe each of the seven indicators and to comment on their relative accuracy. The two also discuss where the stock market currently stands with regard to each indicator, and what takeaways investors should know about the market's status quo.

    7investing and YCharts have a partnership, which offers new subscribers a 20% discount. To set up your free initial trial with YCharts and to use our promotional 7investing rate, please visit this link.


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