Momentum driven markets with Fed-induced multiple expansion at extremely elevated valuations are dangerous for investors even when momentum is strong, because confusing momentum with fundamental strength leads to classic investment errors of buying near the top; position sizing is critical to manage risk.

The stock market has been the most exuberant this year with a rally driven exclusively by multiple expansion (expensive assets getting more expensive) rather than earnings growth, and earnings estimates were actually reduced going into the second quarter, meaning the rally was detached from profit fundamentals.

Employment is a lagging indicator that typically looks pretty good at the beginning of a recession when jobs numbers are still strong, and only shows its worst conditions when recessions are bottoming out, so the lack of current job weakness does not rule out severe upcoming labor market deterioration.

Semiconductor sector stock prices have surged higher in 2023, yet actual semiconductor chip inventories have spiked dramatically high, indicating dead inventory not being sold; this inventory spike has only been comparable to the housing bubble burst or possibly the tech bubble, signaling major underlying weakness in demand.

Healthcare sector bankruptcies are spiking higher now that pandemic-era stimulus support has ended and healthcare companies are off government life support, indicating sector-specific stress from loss of artificial supports.

The Chicago Fed National Activity Index consists of about 80 different economic components; in June only 30 of those components were advancing while the rest were declining, indicating narrowing breadth in economic recovery and typical of an economy starting to slow and face trouble.

The financial cycle leads the business cycle which then leads the price and labor cycle; Hunt pinpointed late fourth quarter 2021 as when the financial cycle peaked, coinciding with stock market all-time highs; from that peak to now is 7 quarters, and typical lags are 7-9 quarters from financial cycle peak to business cycle peak, so the economy is right in the zone for meaningful slowdowns in key areas.

Major bubbles and super-valuations are rare occurrences constituting only a small percentage (perhaps 5-10%) of financial market history, and cannot be analyzed using the same patterns and conclusions as normal market cycles; these episodes are distinct and follow their own characteristic patterns of bursting.

The Dow Jones Industrial Average has had the longest streak of consecutive daily gains in either history or 50 years (accounts vary), and such rare events with only a few prior occurrences in financial history are being used to justify bullish positioning, but small sample sizes and failure to account for current extreme valuations versus prior occurrences make this reasoning unreliable.

Robert Half, a major staffing company specializing in temporary professional placements, has shown negative year-over-year quarterly revenue growth for the first two quarters of 2023, the first such declines in 15-20 years outside of the COVID meltdown and 2008-2009 financial crisis, indicating companies are already pulling back on discretionary spending and optimization before permanent workforce rationalization.

Cardboard box shipments (a leading indicator of goods being purchased and shipped) have fallen off a cliff in recent data, indicating that actual consumer goods purchases are declining sharply despite stable headline retail sales.

Tax receipts on corporate earnings have declined noticeably, indicating either tax avoidance behavior or actual earnings decline, but combined with other data suggests real earnings deterioration is occurring despite accounting gimmicks and CFO manipulation of reported earnings.