Citi Research's proprietary Bear Market Checklist (BMC) has climbed to a level not seen since the global financial crisis of 2008, registering 10 out of 18 indicators that are now signaling caution. The framework monitors a set of 18 measures spanning equity valuations, credit-market readings, corporate activity and investor sentiment, and assigns each indicator a green, amber or red rating according to historical thresholds. Amber flags contribute half a point to the tally while red flags register a full point.
The current global score of 10 out of 18 is notable in the context of prior market peaks. For comparison, the checklist reached 17.5 at the March 2000 peak and 13 ahead of the 2007-08 financial crisis. Regionally, the United States is the most stretched major market with a score of 11.5 out of 18, while Europe records a lower reading of 5 out of 18.
Citi Research cautioned that once the checklist crosses into double digits, it has historically tended to climb more quickly, which can signal a potential acceleration of market risk. The composition of current warnings is concentrated in valuation metrics, though signs of froth also appear in sentiment and select measures of corporate activity.
Valuations and market premium
Valuation indicators continue to be a major contributor to the elevated checklist. On a global basis, the MSCI AC World index currently trades at a trailing price-to-earnings ratio of 24 times and a forward P/E of 18 times, with a cyclically adjusted price-to-earnings (CAPE) ratio of 36. The global equity risk premium stands at 2.5%.
U.S. valuation metrics are higher still. The United States posts a trailing P/E of 28, forward P/E of 22 and a CAPE of 46, with an equity risk premium of 2.5% as well. These measures account for a meaningful share of the checklist's amber and red flags.
Yield curve and fixed income context
The yield-curve spread, measured as the difference between 10-year and two-year government bond yields, is 41 basis points both globally and in the United States. That compares with a negative 50 basis points at the March 2000 market peak and a flat spread at the October 2007 peak. Citi's checklist therefore shows an upward-sloping curve today, rather than the inversions present at prior peaks.
Investor sentiment and analyst positioning
Sentiment indicators are signaling elevated optimism. Citi's Levkovich Index, which measures the extremes of investor panic and euphoria, stands at 0.87 globally and in the United States—levels described by the broker as "euphoric." Analyst bullishness is running above average, at 1.4 standard deviations higher than its historical mean globally and 1.0 standard deviation above the mean in the United States.
Equity fund flows over the past three years amount to 1.1% of market capitalization globally and 0.4% of market capitalization in the United States, reflecting persistent inflows that have contributed to the sentiment backdrop.
Corporate behaviour and earnings
Corporate activity has strengthened across several dimensions. Capital expenditure growth is projected at 21% year-over-year globally for 2026 and at 33% in the United States. Global merger-and-acquisition activity over the past 12 months equals 3.7% of market capitalization. Initial public offering issuance in developed markets has risen to 0.4% of market capitalization, pushed partly by announced and anticipated large U.S. listings; Citi classifies that IPO indicator in amber territory.
On profitability, global return on equity is 6% while U.S. return on equity stands at 21%. Global earnings per share are running 27% above their previous peak, with the United States higher at 34% above its prior earnings-per-share peak.
Credit conditions
Credit-market indicators are described as relatively benign at present. High-yield spreads are 263 basis points globally and in the United States, and investment-grade spreads are 73 basis points. Net debt-to-EBITDA for non-financial companies is reported at 1.3 times both globally and in the United States.
Despite the elevated BMC reading, Citi Research states that the checklist "does not yet indicate a state of pronounced overexuberance" and the firm retains a constructive outlook on equities through year-end. The mix of stretched valuations, strong investor optimism and elevated corporate activity underpins the current cautionary reading while credit metrics remain supportive.