The Stock Market Is Flashing the Same Two Warning Signals It Did Before Past Crashes

For much of the past year, the bulls have had every excuse to celebrate. The SPDR S&P 500 ETF Trust (NYSEARCA:SPY) closed at $757.09 on June 4, 2026, up 27% over the prior 12 months and 11% year to date. The Invesco QQQ Trust (NYSEARCA:QQQ) had tacked on 40% over that same one-year stretch and 21% in 2026 by that date. Wall Street loves a clean uptrend, and the tape looked pristine. But beneath the surface, two old warning signals were flashing the same shade of yellow they flashed before previous 30%-plus drawdowns.

Those signals come from the most recent episode of the Retire SMART Podcast, where the host walked through what he is seeing on the charts he sends to his team. The first is the distance between price and the 200-day moving average, which he describes as roughly one year of trailing closing prices. When the index accelerates rapidly, it pulls further from that average, and the gravitational pull eventually wins. “Everything reverts to the mean,” he said. “It’s just math and physics.”

Signal One: Price Has Drifted Far From Its Long-Run Mean

The current setup qualifies as one of those moments. SPY closed at $757.09 against a long-run simple moving average of $523.61, a gap wide enough that even casual chart-watchers notice. The host was direct about what usually follows: “the last couple times this has happened, they were pretty severe corrections, right? So we’re talking over 30%.” History does not promise a repeat, but the pattern is consistent. Extreme deviations from the trailing one-year average preceded the dot-com unwind, the 2008 financial crisis, and the 2022 bear market, each of which carved 30% or more from the major indexes before settling.

What made the stretch through early June noteworthy was how quietly it had happened. The VIX sat at 16.06 at the time, well off the 31.05 peak it reached on March 27, 2026, and complacency had fully returned after the spring stress period. That calm has since eroded. By mid-October 2026, the VIX climbed back toward 20, touching its highest close since late July as hotter-than-expected inflation data and surging Treasury yields rattled nerves. A fear gauge bouncing from a quiet summer back toward its long-term average is a reminder that the brief window of tranquility does not last forever.

Signal Two: Leverage Is Doing the Heavy Lifting

The second warning is leverage. As the host put it, investors are “borrowing money from the brokerage house, basically, to buy more stock,” which amplifies both gains and potential losses. Margin balances tend to swell late in bull runs because rising collateral values let traders borrow more, and the feedback loop feels harmless until it suddenly does not. When mean reversion finally arrives, levered holders are the first sellers, and forced selling begets more forced selling.

The liquidity backdrop has been consistent with that pattern. The Federal Reserve’s M2 money supply measure stood at $22.80 trillion in April 2026 and has continued climbing, reaching $23.34 trillion by August 2026, up roughly 5.7% over the prior year. Abundant money is the lubricant that lets margin balances expand. Meanwhile the 10-year Treasury yield, which closed at 4.49% in early June 2026, has since surged to around 5.10%, briefly touching a multi-year high above 5.31% on October 5, 2026. That move raises the cost of every levered position and the discount rate behind every richly valued growth stock, tightening the screws on a market that is still priced for perfection.

The market is paying premium prices for an economy whose consumers already feel the pinch of elevated rates.

What I Am Actually Doing About It

I have been investing through cycles for more than two decades, and I have learned that warning signals call for preparation, not exits. The market is hot, and hot calls for discipline. The host’s message to his team was measured: “we just want people to be prepared and make sure you’re having some form of risk management or proactive management on your portfolio.” For his clients, the rule is even simpler. “We don’t use leverage,” he said, and that single discipline tends to be the difference between weathering a 30% drawdown and being wiped out by one.

My own portfolio remains deeply tilted toward the AI trade, which I believe is bigger than the internet was, even if the road there includes brutal corrections along the way. The questions I am asking myself are small and specific. Is there roughly 5% of the book that has run too far and could be trimmed without triggering ugly taxes? Are any positions working only because of borrowed money? Am I confusing a great business with a great entry price? Those are the questions that keep you in the game.

Wall Street still heads higher in the decades ahead. The long-memory lesson here is to recognize when the math and physics of mean reversion are quietly building, refuse the temptation to chase with leverage, and make the small, sober adjustments now that protect you from having to make panicked, dramatic ones later.

Editor’s note: This article has been updated to reflect that M2 money supply reached $23.34 trillion as of August 2026 (up from $22.80 trillion in April), and that the 10-year Treasury yield surged from 4.49% in early June 2026 to above 5.10% by mid-October, briefly hitting a multi-year high above 5.31% on October 5, 2026. The VIX, which sat at 16.06 in early June, climbed back toward 20 by mid-October 2026 as inflation data surprised to the upside.

Contact [email protected] for any questions or corrections.