Is the market going to crash? Many financial pros will tell you that a reckoning of some kind is inevitable -- it’s just a matter of when. Predicting the when is the hard part.
Trying to make sense of the market’s random walk may be a fool’s errand. Financial markets are inherently finicky beasts, after all, prone to bouts of volatility even during periods when the Dow Jones Industrial Average DJIA, -0.34% and S&P 500 Index SPX, -0.68% are ringing up strings of all-time highs.
To help spot warning signs during stretches like this, MarketWatch has created an interactive tool intended to be a sort of financial canary in the coal mine. The charts give investors a way to keep tabs on market vital signs intended to spot the red flags before it’s too late. You can view (and bookmark!) the full graphic here.
The charts update every day, can be adjusted to view historical trends and context, and highlight previous periods in which each indicator flashed a “stress” sign. By comparing the current pattern with past periods of stress, we hope readers will be able to judge for themselves just how anxious they should be.
No indicators are perfect or all-knowing. But by watching these trends in stocks, bonds, and the relationship between various assets for clues, investors can, hopefully, detect shifting patterns -- before things unravel into a full-blown crash.
The indicatorsAn inverted yield curve is a well-known recession predictor, and makes our warning signs watchlist (represented as the U.S. 10-year Treasury yield TMUBMUSD10Y, -0.56% minus the 2-year yield TMUBMUSD02Y, +0.01% ).
The VIX VIX, +8.48% and the direction of consumer sentiment are another two metrics to watch. We’re also recommending investors keep an eye on the spread between junk-bond yields and Treasury notes, as well as a few stocks that could -- and we’ll emphasize the could -- be taking on the shape of a bubble.
These indicators are not comprehensive, but together they comprise a strong indicator of when investors should start to get worried.
-- Mark DeCambre contributed to this article.
