One Year Later: Don’t be a lemming.
A follow-up to “The Cliff - Don’t Be a Lemming” (December 8, 2024)
Exactly one year ago, I published an analysis warning that all identified cycles in the S&P 500 P/E ratio had synchronized into a rare “cliff” formation—a phenomenon previously seen only in 1929 and 2000, both preceding major market declines. The analysis predicted downward pressure on stock valuations at the end of 2024, with the dominant 42-month cycle expected to continue its descent into 2026.
The result? The Value Line Geometric Index—a more accurate representation of U.S. company performance than capital-weighted indices—peaked at 656 in late November/early December 2024, precisely as the cycle analysis indicated. This article examines what happened, why the prediction held, and what the current cycle structure suggests for 2026.
The Original Prediction: A Brief Review
On December 8, 2024, I published “The Cliff - Don’t Be a Lemming,” which identified a rare synchronization of cycles in the S&P 500’s Cyclically Adjusted P/E (CAPE) ratio. The key findings were:
All identified cycles in the P/E ratio simultaneously entered their downward phase
This “cliff” formation had occurred only twice before: in 1929 and 2000
Both previous occurrences preceded significant market declines
The 42-month cycle—the dominant cycle with the highest strength—had just peaked and was transitioning downward
The cycle scanner table from December 2024 showed an extraordinary situation: every single identified cycle displayed a red background, indicating all were in the downward phase simultaneously. As I noted in the original article:
“This is a very rare situation, as normally you would see a mix of cycles with red, yellow, and green backgrounds, with some cycles pointing up and others pointing down.”
The analysis projected that the dominant 42-month cycle would continue its downward trajectory into 2026, suggesting sustained pressure on valuations rather than a brief correction.
Why the Value Line Geometric Index Matters
Before examining the results, it’s crucial to understand why I’m using the Value Line Geometric Index to validate the prediction rather than the more commonly cited S&P 500 or other major indices.
The Problem with Capital-Weighted Indices
The S&P 500 and similar indices are market-cap weighted, meaning larger companies have disproportionate influence on the index’s performance. In recent years, this has created a distorted picture where:
The “Magnificent Seven” tech stocks can drive the entire index higher
The median stock performance may be dramatically different from the index performance
Broad market health is obscured by a handful of mega-cap winners
The Mag7 Distortion: To understand just how severe this distortion has become, consider a thought experiment: What would the S&P 500 look like if we excluded the Magnificent Seven (Apple, Microsoft, Alphabet, Amazon, Meta, Tesla, and Nvidia)? Research and analysis from various sources throughout 2024-2025 revealed that these seven companies accounted for a disproportionate share of the index’s gains. If we stripped them out, the remaining 493 companies would have shown performance much closer to the Value Line Geometric Index—revealing the weakness that the cycle analysis predicted. The capital-weighted indices weren’t showing broad market strength; they were showing the strength of seven companies masking the weakness of the other 493.
The Geometric Index Advantage
The Value Line Geometric Index, by contrast:
Treats all stocks equally, regardless of market capitalization
Provides a more accurate representation of the typical company’s performance
Better reflects the experience of the median investor
More closely aligns with fundamental valuation metrics like P/E ratios
Covers the broader economy, not just the tech-heavy mega-caps that dominate capital-weighted indices
This last point is crucial: The geometric index better represents the health of the overall economy because it includes companies from all sectors—manufacturing, materials, construction, retail, and services—giving equal weight to each. When we analyze P/E ratio cycles, we’re fundamentally analyzing economic valuation cycles, not just the speculation in a handful of tech giants.
When analyzing P/E ratio cycles, the geometric index provides a clearer signal because it’s not skewed by the extreme valuations of a few mega-cap companies.
The Validation: What Actually Happened
The Peak & The Decline
The Value Line Geometric Index reached its peak at approximately 656 in late November/early December 2024—within days of my article’s publication warning about the synchronized cycle cliff.
From the December 2024 peak, the index experienced a 25% decline. The chart reveals a classic topping formation followed by a sustained decline, exactly as the cycle analysis suggested. The index has shown some recovery from its lows but remains approximately 3.5% below the December 2024 peak—one full year later.
The Broader Economic Context: GDP Sectors Confirm the Weakness
The Value Line Geometric Index’s peak and subsequent decline didn’t occur in isolation. Throughout 2025, I conducted extensive cycle analysis of individual GDP sectors, which revealed a troubling picture that strongly supports the original valuation analysis.
Manufacturing and Construction: Main Street Turned Off the Lights
In my October 2025 analysis, “Main Street turned off the lights - Wall Street continues dancing in the dark,” I examined the secondary economic sector—manufacturing and construction—which represents the backbone of real economic production.
The findings were stark:
Both sectors entered negative territory in 2025, with their composite business cycle momentum index crossing below zero
This zero-crossing is a powerful recession indicator that has preceded every U.S. recession in the historical data with no exceptions
The 67-month and 109-month cycles in construction and manufacturing both turned downward
While these sectors represent only about 15% of GDP, they are highly sensitive to monetary policy and serve as early warning signals for the broader economy
The key insight: While Wall Street celebrated AI-driven services and tech stocks, the real economy—where goods are actually produced—was contracting. The geometric index captured this reality; the cap-weighted indices obscured it.
Materials Sector: The Foundation Crumbles
In my November 2025 analysis, “Understanding Economic Cycles in the Materials Sector,” I examined the primary economic sector—the extraction of raw materials that feed the rest of the economy.
The results reinforced the broader pattern:
The 182-week (42-month) cycle in the S&P 500 Materials sector peaked at the end of 2024—the same timing as the overall P/E ratio cliff
This cycle, with a stability score of 0.87, has been remarkably consistent since the 1920s
The materials sector showed lower highs throughout 2025, confirming the downward cycle phase
Short-term cycles (314-day and 79-day cycles) all synchronized their peaks around the end of 2025/early 2026, suggesting continued weakness into Q1 2026
The Convergence: Valuation and Real Economy
What makes the December 2024 prediction so powerful is that it wasn’t just about financial market cycles—it was fundamentally about economic valuation cycles. And now we can see that:
Valuation cycles (P/E ratio) peaked in December 2024 ✓
Broad market index (Value Line Geometric) peaked in December 2024 ✓
Materials sector (primary economy) peaked in late 2024 ✓
Manufacturing and construction (secondary economy) entered contraction in 2025 ✓
This convergence across multiple economic sectors validates that the cycle analysis wasn’t just predicting a market top—it was identifying a fundamental economic turning point. The geometric index, which covers the broad economy including all these sectors, naturally reflected this multi-sector weakness that the cap-weighted indices (dominated by tech services) missed entirely.
The high valuations at the end of 2024 weren’t just a financial market phenomenon—they were pricing in economic strength that the underlying sectors were already beginning to lose. The cycle analysis identified the exact moment when this disconnect would become apparent.
Why Did the Prediction Hold?
1. The Power of Cycle Synchronization
When multiple cycles of different lengths simultaneously peak and turn downward, they create a powerful confluence of downward pressure. This isn’t about any single cycle being “right”—it’s about when all cycles align in the same direction, the composite effect is amplified.
2. The 42-Month Cycle’s Dominance
The 42-month cycle identified in the original analysis has proven remarkably stable over 120 years of data. Its presence at major market peaks (2000, 2007, 2021, and now 2024) isn’t coincidental—it represents a fundamental rhythm in market psychology and valuation cycles.
Notably, this same 42-month cycle appeared in the materials sector analysis with an identical 182-week (42-month) period, showing a stability score of 0.87. The fact that this cycle dominates both P/E ratio valuations and real economic sectors like materials extraction reinforces its fundamental nature—it’s not just a financial market phenomenon but an economic cycle.
3. Valuation Matters Eventually
The CAPE ratio stood at an extremely elevated level in December 2024 by historical standards. While high valuations can persist longer than many expect, the cycle analysis provided the timing mechanism that showed when these elevated valuations would begin reverting to more normal levels.
4. The Geometric Index Tells the Truth
While capital-weighted indices may have been supported by a handful of mega-cap stocks, the geometric index revealed what was happening to the typical company—and the typical company was experiencing the valuation pressure the cycles predicted. By covering the broad economy equally, the geometric index captured the weakness in manufacturing, materials, construction, and other real economy sectors that were entering their downward cycle phases.
5. The Broader Economy Confirmed the Signal
The subsequent GDP sector analyses throughout 2025 confirmed that the high valuation prediction wasn’t just about financial markets—it was about fundamental economic cycles. When materials, manufacturing, and construction all entered downward phases as predicted, it validated that the P/E ratio cycles were capturing real economic dynamics, not just market sentiment.
The CAPE Ratio Paradox: Understanding Right Translation
One question that naturally arises: If the cycle analysis predicted a peak in December 2024, why did the CAPE ratio itself actually reach an even higher level after that date?
What is Right Translation?
In cycle analysis, right translation refers to when a cycle peak occurs later than the theoretical midpoint of the cycle. This phenomenon is particularly common during strong bull markets and reflects persistent bullish momentum that extends the upward phase beyond its typical duration.
Think of it like a pendulum that swings further to one side before reversing—the fundamental cycle is still present, but the peak is “translated” to the right (later in time) due to the strength of the prevailing trend.
Monthly vs. Weekly Cycles
This is where the timeframe of analysis becomes crucial. The original December 2024 analysis was based on monthly P/E ratio data going back to 1900. Monthly data smooths out short-term volatility and captures the major turning points in valuation cycles.
Right translation in a bull market means that even after the theoretical cycle peak, strong momentum can push valuations slightly higher for a brief period—typically one to three months beyond the identified peak. This doesn’t invalidate the cycle; it’s a well-documented phenomenon in cycle theory.
What Matters: The Geometric Index, Not CAPE Alone
Critically, while the CAPE ratio may have ticked slightly higher due to right translation, the Value Line Geometric Index—the actual market measure—peaked precisely in December 2024 and declined thereafter. This is what matters for investors.
The CAPE ratio is an input to the analysis—a measure we use to identify valuation cycles. But the outcome we care about is actual market and economic performance, which the geometric index captures. The fact that the geometric index peaked exactly when the cycle analysis predicted, even if CAPE showed a slightly higher reading a month or two later, demonstrates that:
The cycle analysis correctly identified the market turning point ✓
Right translation in the CAPE ratio was a normal bull market phenomenon ✓
The actionable signal—when to expect the market peak—was accurate ✓
The Practical Implication
For investors, the lesson is clear: Cycle analysis provides probabilistic timing windows, not exact day-by-day predictions. A peak identified in “late 2024” that occurs in November-December is extraordinarily accurate, even if the underlying CAPE ratio shows slight right translation into January 2025.
What validates the analysis is that the Value Line Geometric Index—representing actual investable market performance—peaked in the predicted timeframe and subsequently declined, exactly as the synchronized downward cycles suggested. The slight right translation in CAPE is a technical detail that doesn’t diminish the practical accuracy of the market timing.
Current Cycle Status: December 2025
Where Are We Now?
As of December 2025, we are approximately one year into the projected downward phase of the dominant 42-month cycle. The original analysis suggested this cycle would continue its descent into 2026, meaning we may be approaching the latter stages of this particular cycle’s downward pressure.
What the 42-Month Cycle Suggests
If the 42-month cycle maintains its historical pattern:
Peak: December 2024 ✓ (confirmed)
Trough: Expected mid-to-late 2026 (approximately 21 months from peak)
Current position: Roughly halfway through the downward phase
This suggests that while the most severe pressure may have passed (as evidenced by the recovery from the ~595 low), sustained weakness or consolidation is likely through much of 2026 before the cycle turns upward again.
The Composite Picture
To fully assess the current situation, we would need to update the full cycle scanner to see:
Which shorter-term cycles may have already bottomed and turned upward
Whether any new cycle synchronizations are forming
The relative strength of upward vs. downward pressure from all identified cycles
I will revist these details in one of my next analysis and blog posts and share it here.
However, the GDP sector analyses provide important context: with materials, manufacturing, and construction all in downward phases, the fundamental economic backdrop remains challenging, supporting the view that the 42-month cycle’s downward phase will likely persist through mid-2026 as originally projected.
Lessons from the Prediction
1. Cycle Analysis Provides Timing
Many analysts correctly identified that valuations were extremely high in late 2024. However, high valuations alone don’t tell you when a market will peak. The cycle analysis provided the crucial timing element that made the prediction actionable.
2. Synchronization Is Rare and Powerful
The complete synchronization of all identified cycles into a downward phase is an exceptionally rare event. When it occurs, it deserves serious attention. The fact that it had only happened twice before (1929 and 2000) and both times preceded major declines was not a coincidence.
3. Use the Right Index
Validating the prediction with the Value Line Geometric Index rather than the S&P 500 was crucial. While the S&P 500 may have held up better due to mega-cap support, the geometric index clearly showed the broad market weakness the cycles predicted. If we had excluded the Magnificent Seven from the S&P 500, the remaining 493 companies would have shown performance closely matching the geometric index’s decline.
4. Patience with Cycle Timing
The 42-month cycle projection extended into 2026, not just through early 2025. Cycles unfold over their natural timeframes. The fact that we’re still seeing effects one year later validates the longer-term nature of the dominant cycle’s influence.
5. Right Translation Is Normal in Bull Markets
When a cycle analysis identifies a peak, right translation can cause the underlying indicator (like CAPE) to tick slightly higher for a brief period. This doesn’t invalidate the analysis—what matters is that the actual market (geometric index) peaked in the predicted timeframe.
6. Economic Sectors Confirm Market Cycles
The convergence of valuation cycles, market performance, and real economic sector cycles (materials, manufacturing, construction) demonstrates that cycle analysis captures fundamental economic dynamics, not just market sentiment.
Implications for 2026
The Base Case
If the 42-month cycle continues its historical pattern, we should expect:
Continued consolidation or weakness through mid-2026
Gradual improvement in the latter half of 2026 as the cycle begins its upward phase
The GDP sector analyses support this timeline, with materials sector short-term cycles all synchronizing their peaks around end-2025/early-2026, suggesting additional downward pressure in Q1 2026.
Factors That Could Alter the Timeline
Several factors could accelerate or delay the cycle’s progression:
Monetary policy changes: Significant shifts in Federal Reserve policy could impact cycle timing
Economic shocks: Unexpected events can temporarily override cycle patterns
Valuation compression: If P/E ratios decline faster than expected, the cycle could complete earlier
Shorter-cycle support: If multiple shorter cycles turn upward simultaneously, they could provide support even while the 42-month cycle remains in its downward phase
Sector-specific dynamics: Recovery in materials, manufacturing, or construction could signal the broader cycle is turning earlier than expected
Conclusion: The Value of Cycle Analysis
The accurate prediction of the December 2024 market top in the Value Line Geometric Index demonstrates the power of rigorous cycle analysis. By identifying the rare synchronization of all cycles into a downward phase—a phenomenon seen only in 1929 and 2000—the analysis provided both a warning and a timeline that proved remarkably accurate.
Key Takeaways
The prediction held: The geometric index peaked precisely when the cycle analysis indicated
The timeline is unfolding: We’re approximately halfway through the projected weakness into 2026
The method matters: Cycle analysis provided timing that fundamental analysis alone could not
The right metrics matter: Using the geometric index revealed the truth that capital-weighted indices obscured
Economic sectors confirm: Materials, manufacturing, and construction all entered downward phases, validating that the valuation cycles captured real economic dynamics
Right translation is normal: Slight extension of the CAPE peak doesn’t invalidate the accurate market timing
Looking Ahead
As we move through 2026, the cycle analysis suggests we should expect:
Continued pressure or consolidation through mid-year
Gradual improvement as the 42-month cycle begins its upward phase
Confirmation from GDP sectors as manufacturing and construction bottom
For investors, this means patience and selectivity remain crucial. The cycle hasn’t completed its downward phase yet, and attempting to aggressively buy the dip before the cycle turns could prove premature.
The Broader Message
Markets move in rhythms—cycles that persist across decades and centuries. While each market environment has unique characteristics, these underlying cycles provide a framework for understanding when major turning points are likely to occur. The December 2024 top wasn’t random; it was the result of multiple cycles converging at a single point in time.
Don’t be a lemming. When cycle analysis shows all cycles synchronized in a downward phase—something that’s happened only three times in 125 years—it’s worth paying attention. And when that cycle analysis is confirmed by weakness across multiple economic sectors, the signal becomes even more compelling.
Subscribe to Stock Market Cycles for ongoing analysis
and updates on cycle patterns across global markets.
© 2025 Lars von Thienen, All Rights Reserved.
Information contained on this site is obtained from sources believed to be reliable, but its accuracy cannot be guaranteed. Lars von Thienen “lars.cycles.org” is a publisher of scientific cycle analysis results for global markets and is not an investment advisor. The published analysis is not designed to meet your personal circumstances—we are not financial advisors and do not give personalized financial advice.
Brilliant work validating the geometric index as your metric. Your point about the Mag7 distortion really crystallizes why so many people missed the actual market top happening right infront of them. While the S&P looked fine on the surface, the typical company was experienceing exactly the valuation pressure your cycle analysis predicted. The convergence you mapped between financial cycles and real economic sectors (materials, manufacturing) adds a layer of rigor that most valuation analyses completley lack.