For much of the past year, bullish sentiment in the stock market has been prevalent, with the SPDR S&P 500 ETF Trust experiencing a significant surge. The fund recently closed at $757.09, reflecting a remarkable 27% gain over the previous year and an 11% rise year to date. Meanwhile, the Invesco QQQ Trust saw an even steeper increase, gaining 40% over the same year-long period and 21% in 2026 alone. This upward momentum is typically revered on Wall Street, which thrives on clean market trends. However, beneath this seemingly robust performance, several warning signals are flickering, reminiscent of indicators preceding past market downturns.
Insights shared in a recent episode of the Retire SMART Podcast highlight the first warning signal: the widening gap between the current price and the 200-day moving average. The host explained that this moving average provides a long-term perspective on price trends. The substantial difference noted—SPY trading at $757.09 against a long-run average of $523.61—raises concerns. Historically, such deviations have often foreshadowed severe market corrections of over 30%. Notable past occurrences of this phenomenon include declines linked to the dot-com bubble, the 2008 financial crisis, and the bear market of 2022.
The second warning signals a concerning trend in leverage within the market. The podcast host remarked that many investors are borrowing money from brokerage firms to purchase more stocks, heightening both gains and potential losses. Margin balances typically increase late in bull markets, allowing traders to borrow against rising collateral values, a practice that can lead to a harmful feedback mechanism when mean reversion occurs.
Current liquidity conditions further amplify these risks. As of April 2026, the M2 money supply reached approximately $22.80 trillion, positioning itself in the top percentile of historical distributions. With affordable credit available, margin balances have surged. However, the corresponding rise in 10-year Treasury yields, which hit 4.49% earlier this month, raises the cost of borrowing and, subsequently, the risk associated with leveraged positions.
Despite the current bullish environment, the podcast host advises caution rather than panic selling. With over two decades of investment experience, he emphasizes the importance of preparing for potential market shifts rather than reacting impulsively. This involves implementing disciplined risk management strategies, particularly by avoiding leverage in portfolios. His commitment to managing client risks is evident, insisting that non-leverage is a crucial strategy that can be pivotal during downtrends.
On a personal investment level, the host has concentrated on the burgeoning AI sector, viewing it as a transformative force for the economy. However, he remains vigilant, continually evaluating whether specific holdings have become overpriced or if their performance is overly reliant on borrowed funds. Such reflective practices enable an investor to navigate market volatility more effectively.
While market optimism currently reigns, recognizing the underlying risks of mean reversion is essential for sustaining long-term growth. Adopting a measured approach that emphasizes disciplined adjustments rather than speculative maneuvers can strategically position investors to mitigate potential downturns in the future.
