Watching for overvalued large-cap mergers and acquisitions (M&A), a spooked bond market and the rush of capital into ever riskier assets are all measures investors fearful of the end of the bull market should be keeping a keen eye on, according to market commentators.
The current bull market is the second-longest in post-war history but is arguably the most hated, as volatility has remained low while markets globally have ground to record highs.
As the below shows, over the last decade both bonds – as represented by the Bloomberg Barclays Global Aggregate index – and equities – the MSCI AC World index – have made strong returns.
Performance of indices over 10yrs
Source: FE Analytics
Yet with high-profile fund managers such as Cripsin Odey wrongly predicting the end of the market cycle and other managers holding historically high levels of cash, gold and other hedges in the event of a market correction, it is clear that some believe we could be coming to the end of the run.
While this article in no way attempts to prophesise when this might come about, below FE Trustnet outlines some of the signals that have historically led to bear markets.
We start in the bond space, where Richard Philbin, chief investment officer at Wellian Investment Solutions, said investors can get a good read on whether there will be a market correction in the equity market.
Rather than the ‘dash for trash’, which usually signals the end of the bear market, one key metric investors should be worrying about a ‘dash for cash’ when it comes it bull markets.
“One of the things you want to do is see whether there is still support for the market,” the CIO said.
“You need to look at how equity managers are building their cash positions in their funds or whether fixed income managers are going shorter term in terms of duration or moving up the credit quality.”
For example, if typically bullish fixed income managers are moving out of sub-investment grade in favour of investment grade credit this can signify an end to the bull market, Philbin said.
He added that the bond market is a good starting place for investors, as it tends to get “spooked” quicker than equity markets.
“You need to see how the yield curve is moving relative to the equity market. If the bond market starts to sell off but the equity market isn’t selling off, it’s generally that the bond market is starting to get a bit spooked. That is certainly an early warning signal to take into account and look for accordingly,” Philbin noted.
Another key thing for investors to look at is the appetite for new issuance in the bond market and whether investors are making more or fewer demands on the issuer. 
“If you think about an equity being a perpetual vehicle in that it has no fixed life whereas the bond market does have a fixed life so you have got much more activity in the bond market than you do in the equity market in terms of new issuance,” the CIO said.
“Humans by their very nature like something that is sparkly and new. This could be just be the rolling over a corporate or sovereign debt but because it is new you have a whole new book to be built off the back of it.”
Equities tend to have a loyal, long-term shareholder base while bond buyers tend to be more fickle, he noted, looking to add the next new bond to maximise returns.
As such, considering whether the new issuance from companies is heavy or light on covenants, has a higher/lower yield than peers or other bonds from the same company are all good measures to gauge the risk appetite of the market.
Philbin added: “If things are going well, then by and large most people will take the new bonds at face value. When things are going badly they put further restrictions and greater controls over what the coupon is and how long the bond can last for etc.
“When signals like that start to show that things are tightening in the bond market then things are slowing down economically and that will have a knock-on impact on the equity market.”
Turning to equities, historically it has been possible to see the end of a bull market by measuring flows into higher-risk asset classes, but this has been distorted somewhat in the current market.
“This is in essence the covenant-light bit of the equity market where someone says ‘I’ve got an idea let’s see if we can get it away’ and then they raise hundreds of millions of pounds but actually this is a company that doesn’t have and revenue or earnings so it is a good idea rather than a proven idea,” Philbin said.
However, companies such as Uber have distorted this somewhat, as the company has not had to list yet has attracted huge inflows from private investors and is now the largest unlisted company in the world.
“One of the major problems I think we’ve got at the moment is that – and I mean this in a light-hearted way – I think there are degrees of the capital market that are broken at the moment,” he added.
“I will use Uber as a prime example. Uber is a business that is growing like a weed and there is no doubt about that, but it has got a market cap of $60bn.”
As such, some of these bubbles are taking place in the private market rather than the equity market, meaning that new listings are fewer and unlisted companies are harder to gauge.
One area that is worth paying attention to is looking at the inflows into asset classes rather than individual assets. 
While technology has been a strong long-term theme, the CIO noted that the recent pickup of interest in niche areas such as artificial intelligence and cyber security are a good example of this.
“I don’t mind having a part of that as part of a broader technology play but do I want to specifically go into that?” he asked.
The other thing for investors to keep an eye on is increased M&A activity, according to AJ Bell’s Ryan Hughes (pictured).
The head of fund research said: “I would say when you get to the top of the cycle you start seeing some strange corporate behaviour.
“You see some crazy M&A deals going on at crazy multiples and you see management doing odd things with the way they manage the business and what they do with cash.”
For example, before the financial crisis of 2008, M&A deals hit a record of $1.8trn, while before the technology bubble of 1999 there were a number of high profile ‘megamergers’ including Vodafone and AOL.
“You tend to get the momentum stocks which are the darlings have their last hoorah and that is why you see crazy M&A rather than people picking over the unloved stuff,” he noted.
Conversely, he added that the bear market is usually predicated on the ‘dash for trash’, with investors looking to buy anything that is cheap.
“The trash argument is a pure valuation argument for some stocks that are just too cheap and it doesn’t have to be a well-run business, it doesn’t have to be profitable, it just has to be cheap,” Hughes said.
“You get that indiscriminate approach where the market writes these business off. Some might turn out to be good businesses while others probably in time just won’t exist anymore but you can still make a lot of money on them.
“So you saw that in 2009 when the market bottomed out in the financial crisis. The way to win that first part of the recovery was simply to buy the most leveraged rubbish in the market that people thought should go bust. Then of course the market becomes more rational.”