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CHAPTER 10: The Case for Market Timing > Where Are We in the Cycle?

Where Are We in the Cycle?

A number of indicators can give you a sense of where we are in a market cycle.

  • Stock valuations: These can tell us, broadly speaking, whether the market is cheap or expensive. Although these measures can't pinpoint entry or exit points, they are a useful part of the overall picture. The two most common measures are dividend yields and price/earnings ratios. (Warning: When evaluating P/Es, a forecast of future earnings is far more useful than a backward look at historical earnings.)
  • Economic outlook: GDP growth, possibility of recessions, inflation, job growth, and, very important, the growth of corporate earnings.
  • Federal Reserve monetary policy: Is it accommodative or restrictive?
  • Sentiment indicators: Most common are bullish/bearish opinions of professionals, a contrary indicator (meaning that usually sentiment is the opposite of the true picture).

  

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