Are global stocks overbought?

You’d be forgiven for asking, wouldn’t you? After all, the world’s staring down the barrel, both figuratively and in some cases literally.

Some observers, both inside and outside markets, have taken to describing the US as a “rogue superpower” which is only a little less terrifying for those of us who live in American than it is for everyone living outside the country.

At any given time, Donald Trump can torpedo the global growth outlook with a single social media post. So far, his most outlandish tariff threats have proven empty, but as I’ve argued repeatedly, past a certain point the to and fro from the on-again, off-again trade war is almost worse than if Trump would just settle on a high rate and stick with it.

Businesses can’t plan right now, and if visibility doesn’t improve, management teams may decide on a “better safe than sorry” approach, canceling orders and pausing hiring plans. There’s talk of other countries routing trade flows around and away from the US, and while that’s probably prudent for all sorts of reasons, I’m not sure how viable it is. Nobody wants to lose access to the US consumer.

I know, better than most, that it’s almost always possible to argue that “clueless” equities are ignoring a constellation of ostensibly obvious risks. I was friends once with a man who made millions of dollars peddling different versions of that narrative year in and year out post-2009 as the S&P embarked on the longest bull run in history. God only knows how many people lost money as a result of his self-serving doom prophesies.

I’m not going to tell you “this time’s different” — that Trump’s a unique risk, that the odds of a nuclear war are higher than they’ve been in decades, that if globalization was responsible for higher profit margins, then de-globalization will invariably mean the opposite, and so on. You know the bear pitch and if I’m honest, I’m not sure it’s actually that much scarier than bear pitches from any other year.

Still, this is one time when it’s not an exaggeration to say investors are witnessing an epoch shift, and maybe several all at once. Globalization’s not “reversible,” per se, but proliferating trade barriers and economic nationalism can certainly put the brakes on, and that’s not going to be painless from a profits perspective. Politically, the West is succumbing to illiberalism, which is to say the liberal democratic (small “l,” small “d”) consensus no longer holds, and that too is going to impact markets. I could go on.

For now, global stocks are treating these shifts as though they don’t warrant a discount. The MSCI gauge is back to records.

As the simplest of simple figures (above) shows, the post-“Liberation Day” drawdown is recouped, and then some.

For whatever this is worth — and some of you might’ve already heard this by now considering he’s said for three weeks in a row — BofA’s Michael Hartnett cautioned that one of the bank’s trading “rules” (they aren’t really rules, not investment advice, etc.) which references that index is very close to triggering a contrarian “sell” signal.

Specifically, when greater than 88% of the markets which comprise the MSCI ACWI are trading above their 50- and 200-day moving averages, it’s time to be cautious. Currently, Hartnett said, 84% meet that criteria, suggesting global equities are very close to being overbought if they aren’t there already.