Good times plant the seeds of bad times, and the other way round.
Markets move in cycles.
Up or down next month? Swipe. Don’t think.
Next month is a coin flip. The long cycle is plain to see.
← Red LinesRed Line 29 of 48 The idea Why the top is riskiest Where you see it Where it bends This game’s numbersHow strong the proof isBGood proof, with limits Where it comes from
Markets swing between fear and greed and rarely rest in the middle. Each extreme sets up the swing back.
When everyone is buying and feels safe, prices are high and caution is low: that is when the risk of a fall is greatest. In a panic, prices are low and much of the risk has already gone.
Headlines are most cheerful near tops and most frightening near bottoms. The mood is a signal, often the wrong way round.
Cycles keep no timetable, so you can’t trade on them by the calendar.
Yahoo Finance: S&P 500 monthly historyAP: Mar 2009 closeFirst Trust: Jan 2018 closePBS / AP: Mar 2020 closeClosing milestones of the S&P 500 (Wikipedia)
Long data in many countries show that easy credit and calm optimism come before busts, but the timing of each turn can’t be predicted.
- Credit Booms Gone Bust: Monetary Policy, Leverage Cycles, and Financial Crises, 1870-2008 Moritz Schularick & Alan M. Taylor, American Economic Review 102(2), 1029-1061, 2012
- Credit-Market Sentiment and the Business Cycle David López-Salido, Jeremy C. Stein & Egon Zakrajšek, Quarterly Journal of Economics 132(3), 1373-1426, 2017
Checked 2 Nov 2026 · How we grade
- A Strong proof: Many good studies or long official data, from different teams or countries, point the same way.
- B Good proof, with limits: Solid studies agree on the direction, but the size varies, or the data covers few places or few kinds of people.
- C Mixed proof: Some good studies for, some against, or the evidence covers only part of the line.
- D Thin proof: Mostly one book’s argument, one survey or stories. It may be wise, but it has not been tested well.
- = True by the sums: It follows from arithmetic, so no study can overturn it. We still show what real data says.
Howard Marks, Mastering the Market Cycle (2018). In our words, not quoted.
See it in numbers: Herding (From Zero)
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