Recent market pullbacks from all-time highs have reignited concerns about overvaluation. In this third instalment of our 2026 Outlook Series, we back-test a broad set of key economic and financial indicators to determine whether the current correction is merely a healthy consolidation after an extended rally or a warning sign that the economic cycle is approaching its late stage. In conjunction, as MacroMicro enters its 10th year, we are proud to introduce our brand-new, exclusive Bull and Bear Indicator, designed to help you quickly assess the direction of major equity markets!
Key Takeaways:
- Global equity valuations are elevated, with margin debt rising in tandem: The Buffett Indicator and other valuation metrics have reached extreme levels. Margin balances in both the US and Taiwan are significantly above historical averages, signaling overheated market sentiment.
- MacroMicro’s Proprietary 12-Country MM Bull and Bear Indicator: Through a quantitative system that ran over 100 million simulations and screened thousands of variables, we distill complex market signals into a simple 0–100 score to identify turning points.
- Investing with the MM Bull and Bear Indicator reduces drawdowns and improves win rates: Back-testing shows that timing equity exposure based on the index—and building cross-country portfolios—results in smaller drawdowns, higher win rates, and superior returns compared with traditional buy-and-hold strategies.
Global stock markets rallied rapidly after tariff concerns subsided, with the MSCI All Country World Index (ACWI) briefly breaking through the 1,000-point milestone in early November—an all-time high. However, as companies began announcing aggressive capital expenditure plans and increased corporate bond issuance, concerns resurfaced over excessive tech-sector concentration and stretched valuations. Equity markets started to correct in mid-November, with tech stocks leading the decline.
In this third instalment of our 2026 Outlook Series, we use extensive back-testing to determine whether this correction represents a routine consolidation or a warning that the business cycle is nearing its peak. Marking our 10-year anniversary, we also introduce the MM Bull and Bear Indicator, a comprehensive index designed to help investors assess market direction more efficiently.
I. Are We in Bubble Territory?
We begin by examining several essential valuation and margin-related indicators often referenced by professional market participants. The results point to some emerging areas of concern.
Valuation Metrics Are Soaring Across The Board, US & Taiwan Margin Debt Is Rising Fast
The global Buffett Indicator (global market cap / global GDP), expressed in Z-score terms, has climbed above 2, meaning it currently sits more than two standard deviations above its long-term average. Historically, such extremes have been associated with elevated downside risk—similar patterns occurred in 2008, 2015, 2018, and 2022. The MSCI ACWI dividend yield Z-score has also fallen below –1, indicating yields are well below their historical norm—another sign that equities are expensive relative to earnings. Margin financing tells a similar story. Our back-testing shows that Taiwan’s listed margin financing and US FINRA margin debt currently sit 1.5 and 2 standard deviations above ...
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