A Rare Stock Market Signal Just Flashed for the 9th Time Since 1950. The First 8 All Ended the Same Way.

New investors often try to track current market behavior and search past patterns to predict future outcomes. Recession indicators like yield-curve inversion and other historical patterns can be useful for reflection, but they should not be treated as a crystal ball for stock or portfolio decisions. Time in the market is presented as more reliable than timing the market. The current environment is described as unusual, with strong bullish sentiment around AI stocks alongside bearish views that AI is a bubble. Comparisons to the late 1990s are said to be limited because conditions differ from the lead-up to the dot-com bust. A rare signal from Goldman Sachs links hot market momentum and elevated risk appetite after a winning streak, implying a correction may follow when risk appetite rises above 1.0 alongside high momentum.

"It's quite tempting for new investors to want to track the market's current behavior while looking for patterns in the past to try to get a feel for how things could go in the future. Of course, there are so many technical moves, patterns, and streaks that tend to pave the way for a certain behavior to follow shortly after."

"Whether we're talking about recession indicators, such as the inversion of the yield curve, or other patterns that have a track record that might not be good enough to be remarked upon, I do think that investors should treat such moves as interesting food for thought and as less of a crystal ball for what to do next with their stocks or portfolio. At the end of the day, time in the stock market beats timing the stock market."

"What's more interesting, though, is a recent flag from Goldman Sachs, which highlighted something that's only been seen a few times over the past several decades. According to Goldman, market momentum (as measured by something called the Z-score) and Goldman's own risk appetite indicator (RAI) came in hot enough after the market's latest winning streak (it just ended with a mild 2% spill this week)."

"In short, the market is coming in hot, and, undoubtedly, that's probably made a lot of investors, especially the AI bears, that much more nervous. Whenever the RAI moves above 1.0 while momentum skews towards the higher end of the range, things are getting hot, perhaps enough that a correction is warranted. The last eight times it's happened, what followed was capped"

Read at 24/7 Wall St.