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<h2>Measuring bellwether leadership...</h2>
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<p>Historically, there are certain stocks that have reliably led the broad market averages at major market tops. These stocks tend to lead for a variety of reasons, including sensitivity interest rates, underlying economic conditions, or consumer spending.&nbsp;&nbsp;In order to capture the potent signals from these stocks in the lead up to a bear market, we compiled these stocks into a composite known as the InvesTech Bellwether Index.</p>
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<p>Underperformance in our Bellwether Index relative to the S&amp;P 500 Index is often an important warning flag that either a steep correction or a bear market lies in wait.&nbsp;Negative divergences in this Index can be clearly seen prior to the popping of the Tech Bubble in 2000 and the Great Recession in 2008.&nbsp;Other instances of underperformance in this Index, however, become more apparent when viewed from a relative basis.</p>
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<p>The chart below quantifies when the Bellwether Index is lagging behind the S&amp;P 500. &nbsp;When the Bellwether Index has underperformed the S&amp;P Index by -10% or more within a 12-month period, it has led to a bear market (or near bear market) every time since the Index's inception, in addition to a -19.8% correction in 2018. Note that poor relative gains in the Bellwether Index prior to both the 1987 crash and the 2020 COVID crash become obvious when viewed from this perspective.&nbsp;In practice, investors should exercise caution either when the Bellwether Index is visibly diverging from the S&amp;P 500 or when the Bellwether Index’s relative drawdown falls below -10%.&nbsp;In both cases, it could be a sign that the bull market is on its last legs.</p>
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