After financial market meltdowns, signs that they were coming usually appear obvious.
Stock market participants have had some experience with this, given that the S&P 500 index has plunged more than 30 percent in a 12-month period six times in the last 50 years.
So if the market begins such a crash now, what will the warning signs have been? The
Financial Times identifies seven of them.
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- "Leveraged loans to private equity are not just flashing red but have a wailing siren and a man walking in front waving a flag."
- Junk bond yields have plummeted.
- Initial public offerings are partying like it's 1999.
- Merger and acquisition activity is soaring.
- Companies are taking on debt to buy back their shares.
- Valuations are stretched. The S&P 500 had a trailing price-earnings ratio of 19.36 Friday, up from 18.56 a year ago, according to Birinyi Associates.
- The Federal Reserve's quantitative easing is coming to an end.
But not everyone is worried about a crash. Societe Generale analysts Patrick Legland and Daniel Fermon think interest rates will rise only gradually, which will keep stocks from falling.
"The risk is that a sudden and sharp re-pricing of U.S. rates could trigger higher volatility in both the bond and equity markets," the duo writes in a report obtained by
MarketWatch.
"This could happen in the event of better economic data and a pick-up in inflation. But, our economists don't see any convincing sign of inflation or any strong improvement in wages until the tail-end of the year."
Consumer prices rose 1.7 percent in the 12 months through August.
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