The final furlong?

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Legendary investor Sir John Templeton observed that bull markets experience four phases: pessimism, scepticism, optimism and euphoria. He posited that markets are born on pessimism, grow on scepticism, mature on optimism and die on euphoria. Put less politely by Barton Biggs, Morgan Stanley’s erstwhile strategist: “A bull market is like sex. It feels best just before it ends.”

More recently, Howard Marks, of Oaktree Capital, identified just three stages of a bull market: when a few forward-looking people begin to believe things will get better; when most investors realise improvement is under way; and when everyone’s sure things will get better forever.

So how do we know when the market has peaked? A list of my favourite indicators is currently flashing amber and suggests we might be at the final stage of the bull market.

First, advertising is the so-called canary in the mine shaft, as companies can cut ad spend quickly and easily without ...