Valuation-based bubble definitions can fail because corporate earnings themselves inflate unsustainably when scarce supply prompts excessive customer orders. Defining a bubble purely as a real price move exceeding two standard deviations above its long-term trend bypasses distorted earnings metrics.
The nominal yield level of sovereign bonds rarely damages equity returns on its own. Stocks tend to absorb higher rates smoothly until the rate of change sparks rapid implied volatility in the Treasury market, as reflected by the MOVE index.
Buying fixed income prematurely during a tightening cycle exposes capital to compounding losses. Because bond markets continuously price in additional hikes until policy rhetoric turns explicitly dovish, waiting until a single hike remains provides a much safer entry point.
TIPS do not provide effective inflation protection when a central bank actively hikes rates to combat rising consumer prices. Unless short-duration paper is used, the negative price impact from rising yields across the curve outweighs the inflation accrual coupon.
Emerging market assets are heavily driven by macro sentiment in broader developed markets rather than local domestic news. Even after significant domestic catalyst events like national elections, global equity momentum accounts for the vast majority of emerging market price trajectory.
Late-stage market bubbles typically feature extreme breadth narrowing into a small cohort of leadership stocks. Tracking whether four of the top seven market leaders break below their 200-day moving averages provides an actionable signal to liquidate equities well before fundamental earnings data turns.
When corporate credit spreads become ultra-tight, they offer an asymmetric, low-cost downside hedge for equity portfolios. Because compressed spreads have minimal room to tighten further, credit underperforms drastically if an equity bubble bursts and prompts a broad economic recession.