Global equity markets are beginning to display several late-cycle characteristics that warrant caution. While headline indices continue to rise, underlying dynamics suggest we are approaching a cyclical peak.
Speculative activity resurfaces. The resurgence of SPAC issuance is notable: year-to-date 2025 volumes have already exceeded the combined totals of 2023 and 2024. Historically, SPACs have delivered disproportionate gains to sponsors while eroding investor capital, making their reappearance a reliable indicator of speculative excess. Likewise, flows into Cathie Wood’s ARK Innovation ETF spiked sharply in early August before reversing within weeks — a sign of unstable retail-driven momentum.
Corporate behavior signals late-cycle positioning. Companies are accelerating share buybacks, activity that historically clusters near market highs. At the same time, merger and acquisition activity has picked up. Notable recent transactions include 3G Capital’s acquisition of Skechers and Sycamore Partners’ purchase of Walgreens Boots. Such deals, often financed through leverage, typically precede widening credit spreads within 6–18 months.
Capex expansion in technology. Capital expenditures in the tech sector have risen meaningfully, another hallmark of market peaks. While AI-related companies are not yet heavily indebted, their valuations are highly sensitive to interest-rate expectations. Any Federal Reserve misstep — particularly under political pressure to balance inflation risks against growth — could rapidly reprice these assets.
Implications. Historically, market tops unfold gradually, with drawdowns of roughly 10 percent over a three-month horizon. However, given today’s elevated valuations and leverage in corporate balance sheets, the risk of a sharper correction (>20 percent) cannot be excluded. Monitor speculative flows, corporate actions, and credit conditions closely, as these remain the most reliable leading indicators of a transition from late-cycle strength to contraction.
