MW It's hard to predict a stock-market top, but two red flags have this analyst eyeing the eject button

By Jamie Chisholm

A faltering economy and fizzling AI trade could spark a pullback for stocks

Prepare to eject from the market

Wall Street delivered the bullish trifecta on Thursday. The Dow DJIA, S&P 500 SPX and Nasdaq COMP all closed at new record highs.

As ever, such milestones come with heightened nerves among the more trepidatious market participants. When will we know it's the peak, they fret.

"To ask what will trigger the next stock market crash is akin to asking which snowflake will trigger the avalanche," says Peter Berezin, chief global strategist at BCA Research.

In a new research note, Berezin looks at previous sharp market pullbacks to illustrate that it's rarely one catalyst but usually a combination of events that causes a sell-off. That makes it more difficult to tell when a market dive is about to start.

Take 1987, for example, when the Black Monday crash followed a rising U.S. trade deficit and a falling dollar that increased fears the Federal Reserve would be forced to hike rates. Ten-year Treasury yields surged from 7.1% at the start of the year to 10%. Also, the House of Representatives filed legislation to limit tax benefits of mergers. Together these factors met a market on stretched valuations, Berezin observes.

Similarly, the 1998 swoon was not just about the implosion of hedge fund Long Term Capital Management, but also in response to the collapse of Peregrine Investment Holdings, Asia's largest private investment bank at the time. The market was also fearful that China would be forced to devalue its currency, and then Russia defaulted on its sovereign debt.

Even the dot-com bubble bursting in 2000 has been oversimplified. It wasn't just overvaluations that took their toll - investors were spooked by the Fed resuming rate hikes and a surge of equity supply as net stock issuance went from $9 billion in 1999 to $59 billion in just the first quarter of 2000, according to BCA.

And more recent pullbacks show the market is able to tune out disturbing factors for a while. The S&P 500 fell 27% from the start of 2022 to October of that year despite it being clear in the the fall of 2021 that surging inflation would cause the Fed to raise borrowing costs aggressively.

One positive thing about these previous market dives is that full blown bear markets typically occur during periods of economic malaise. "When the economy remains resilient, as it did in 1987, 1998, 2020, and 2022, stocks tend to bounce back quickly," says BCA.

Unfortunately, looking ahead, Berezin reckons that both major supports of the current bull market - a resilient economy and AI euphoria - will wane.

The deteriorating labor market shows the U.S. economy is vulnerable. "The seemingly modest rise in the unemployment rate has been masked by the fact that many people have given up looking for work. If one were to include persons who are not in the labor market but who still currently want a job, the unemployment rate would have increased by 0.76 percentage points since January," says Berezin.

The housing market is looking "increasingly shaky," he adds, while outside the U.S., growth has been propped up by demand from tariff front-running.

In addition, though AI is a secular growth story, it will not be immune to a cyclical downturn. BCA notes that companies such as Meta Platforms (META) and Alphabet $(GOOGL)$ are highly exposed to advertising, and if consumer spending slows then ad revenue will fall sharply.

"Past experience suggests that investors often get jittery when free cash flows begin to decline," says BCA. "This happened in late 2021 after the combined free cash flows of the hyperscalers - Amazon (AMZN), Google, Meta, Microsoft $(MSFT)$, and Oracle - temporarily rolled over."

BCA thinks hyperscaler capex will not peak until the second half of 2026, but the stock prices of AI-linked companies, which currently represent a third of the S&P 500 market capitalization, "could swoon well before then." Consumer spending would then fall further as equity wealth declined.

"While it is impossible to know exactly when global equities will peak, there are now enough vulnerabilities to justify keeping one's finger near the eject button," Berezin summarizes.

The markets

U.S. stock-index futures (ES00) (YM00) (NQ00) are lower as benchmark Treasury yields BX:TMUBMUSD10Y rise. The dollar index DXY is higher, while oil prices (CL.1) climb and gold futures (GC00) are trading around $3,683 an ounce.

   Key asset performance                                                Last       5d     1m      YTD      1y 
   S&P 500                                                              6587.47    1.31%  1.84%   12.00%   17.72% 
   Nasdaq Composite                                                     22,043.07  1.54%  1.53%   14.15%   25.46% 
   10-year Treasury                                                     4.045      -3.20  -27.60  -53.10   38.80 
   Gold                                                                 3680.4     1.12%  8.83%   39.45%   41.22% 
   Oil                                                                  62.64      1.08%  -0.79%  -12.84%  -9.53% 
   Data: MarketWatch. Treasury yields change expressed in basis points 

The buzz

U.S. economic data due Friday include the preliminary reading of consumer sentiment for September at 10 a.m. Eastern.

U.S. President Donald Trump is pressing a federal appeals court to remove Governor Lisa Cook before next week's policy meeting.

Paramount Skydance $(PSKY)$ is preparing a Larry Ellison-backed bid for Warner Bros. Discovery (WBD), according to reports.

Adobe stock $(ADBE)$ is recovering some ground after a tough year as investors welcome the software company's better-than-expected earnings.

RH shares $(RH)$ are falling after Gary Friedman, chief executive of the furniture retailer, said "significant inflation" will emerge this year "and accelerate into 2026 and beyond."

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The chart

'Doctor Copper' is the ratio of the price of copper divided by the price of gold, says Richard Woolnough, one of M&G Investments' Bond Vigilantes team. "Copper, an industrial metal, reflects economic activity, while gold is traditionally viewed as a store of wealth. The theory goes: when the economy is strong, the ratio is high; when it's weak, the ratio is low," he says. The chart shows that previous declines in the Doctor Copper ratio have often aligned with periods of economic slowdown or recession. "While investors remain optimistic, the copper-to-gold ratio is signaling a more cautious view," says Woolnough.

Top tickers

Here were the most active stock-market tickers on MarketWatch as of 6 a.m. Eastern.

   Ticker  Security name 
   TSLA    Tesla 
   OPEN    Opendoor Technologies 
   NVDA    Nvidia 
   GME     GameStop 
   AAPL    Apple 
   ORCL    Oracle 
   ADBE    Adobe 
   PLTR    Palantir Technologies 
   NIO     NIO 
   BABA    Alibaba 

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-Jamie Chisholm

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September 12, 2025 06:21 ET (10:21 GMT)

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