Estimating the Next S&P 500 Market Cycle Top July 2025

Our analysis suggests the S&P 500 is approaching a cyclical peak within the next 2 months. Investors should exercise vigilance and consider risk management strategies as multiple indicators align near a market top.

• Momentum: RSI > 70 (overbought), MACD flattening
• Breadth: Only ~60% of S&P 500 above 200-day Moving Average
• Valuation: Forward P/E 22.3 (5-year average: 19.9)
• Yield Curve: Deeply inverted, now normalizing
• Sentiment: AAII bulls > 41%, BofA "Sell Signal" triggered
• VIX: Near multi-year lows (~16), indicating complacency

A confluence of technical, macroeconomic, and sentiment indicators suggests the S&P 500 is approaching a cyclical peak within the coming weeks to months. Multiple warning signals – from overbought momentum oscillators and narrowing market breadth to an inverted yield curve and exuberant investor sentiment – are aligning in classic late-cycle fashion. Barring an unforeseen shock or policy shift, our analysis points to a market top likely on the order of ~60 days away (roughly 2 months), with potential triggers having the power to accelerate or delay this timeline modestly.

• Overbought Momentum (RSI & MACD): The S&P 500’s rally has pushed momentum indicators into overbought territory. The 14-day RSI hovers in the upper 70s, above the classic overbought threshold of 70. Bearish RSI divergence is forming, and MACD is flattening, both classic signs of a waning uptrend.
• Extended Moving Averages: The index is stretched above its 50- and 200-day moving averages, with the distance above the 200-day MA in the upper decile of history. Such overextension often precedes corrections.
• Market Breadth Deterioration: Only ~60% of S&P 500 stocks are above their 200-day average (down from >80%), and the Advance–Decline line is diverging negatively. This narrowing leadership is a classic late-cycle warning.
• Put/Call Ratio & Volatility: The CBOE put/call ratio is unusually low (~0.6), signalling excess bullishness. The VIX sits near multi-year lows (~16), reflecting investor complacency. Both are contrarian sell signals.

• Interest Rates & Yield Curve: Fed funds rate is at a 15-year high (4.25–4.50%). The yield curve has been deeply inverted for over a year, a historically reliable recession signal. The recent normalization of the curve is itself ominous, as recessions often follow within months.
• Inflation & Fed Policy: Core PCE inflation remains above target (~3%), and the Fed is not eager to ease. Monetary policy is a headwind for equities, with rate cuts only likely if the economy weakens.
• Economic Growth & Earnings: GDP growth is forecast to slow to ~1.4% in 2025, with unemployment rising. S&P 500 forward P/E is 22.3 (vs. 5yr avg 19.9), and CAPE is ~31, both well above historical norms.
• Interest Rate Sensitivity: Higher financing costs and tighter credit are beginning to weigh on corporate earnings and consumer spending, classic late-cycle dynamics.

• Investor Sentiment Surveys: AAII bullish sentiment is above 41% (long-term avg ~38%), and BofA’s Fund Manager Survey shows the most bullish institutional sentiment in 5 months. Cash allocations are at a contrarian low (3.9%), triggering BofA’s sell Signal.
• Volatility & Hedging: VIX and cross-asset volatility are muted, with little demand for crash protection. This complacency can persist, but leaves the market vulnerable to shocks.
• Retail Trading & Speculation: Speculative trading is rising, with elevated volumes in options and meme stocks, and margin debt near all-time highs. This public participation phase is typical of late-stage bull markets.

• Federal Reserve Signals: Hawkish surprises (rate hikes, tough talk) could accelerate a top; dovish surprises could delay it briefly. Key dates: Jackson Hole (late Aug), FOMC meetings (Sep, Oct/Nov).
• Inflation & Economic Data: Hot inflation or weak jobs data could hasten a top. Any disappointment could puncture the rally quickly.
• Earnings Season: Disappointing results or cautious guidance from major companies (especially tech) could trigger a swift reversal. Strong results could delay the top, but upside is likely limited.
• Geopolitical/Policy Shocks: Trade disputes (e.g., new tariffs by Aug 1), international conflicts, or fiscal standoffs could jolt markets.
• Credit Market Stress: Widening credit spreads or distress in corporate/real estate debt could preemptively end the rally.
• Melt-Up Scenario: A final euphoric surge could delay the top by a few weeks, but would likely make the eventual correction more severe.

• Dot-Com Bubble (2000): Narrow leadership, euphoric sentiment, and high valuations persisted for months before a severe downturn. Today's market shows similar breadth and optimism.
• Roaring Twenties (1929): Parabolic rises and rampant speculation preceded a swift crash. Valuations now rival those extremes, raising correction risk.
• Nifty Fifty (1972): A handful of star stocks masked broader weakness. When fundamentals caught up, the market declined sharply.
• 2007 Peak: Yield curve inversion and credit cracks preceded the top. The current cycle6s inversion duration and credit risks echo this pattern.
• 2018 & 2020 Mini-Cycles: Low volatility and complacency led to abrupt corrections when shocks hit. Today6s calm could be the calm before the storm.

Our reasoned estimate: The S&P 500bull market has on the order of ~60 days left before topping out, give or take a few weeks. This points to a peak before autumn is well underway (likely by late September 2025). Technicals are stretched, macro conditions are late-cycle, and sentiment is near contrarian trigger levels. Investors should monitor key events (Fed, inflation, earnings) as potential ringing bells at the top. The risk-reward is poor at these levels, and the clock is ticking in days, not years, toward the cycle peak.