The Hindenburg omen: how Fall 2021 foreshadowed the market crash of 2022

In the autumn of 2021, the mood on Wall Street was almost euphoric. The S&P 500 was climbing to new records, the Dow Jones Industrial Average pushed above 36,000 for the first time in history, and the Nasdaq was powered by a handful of tech giants that seemed destined to rewrite the future. Tesla and Nvidia were minting fortunes for investors, Microsoft and Alphabet looked untouchable, and Apple was flirting with the idea of becoming the world’s first three-trillion-dollar company.

It was a remarkable turnaround from the dark days of 2020, when the pandemic froze economies and sent markets into freefall. By late 2021, vaccines had rolled out, corporate earnings were recovering, and consumer spending was strong. To the casual observer, it looked as though the worst was behind us. But beneath this surface optimism, something important had changed — subtle signals that the rally was running out of steam, and that the crash of 2022 was closer than most investors realized.

A market at record highs, but narrowing leadership

November 2021 marked the peak of the bull market that had begun in March 2020. Yet even as the indices set records, market internals were flashing warning signs. The rally had become increasingly narrow. While the S&P 500 climbed, fewer and fewer stocks participated in the move. A small number of mega-cap names carried the weight, while many companies in the broader market quietly stalled or declined.

This kind of divergence has historically been a bad omen. Strong markets tend to lift all boats, but when leadership concentrates in a handful of companies, it often signals fragility. Analysts began to talk about the “everything bubble,” noting that valuations across not only equities but also real estate, bonds, and even cryptocurrencies were stretched to extremes. Veteran investor Jeremy Grantham called it a “superbubble” — one of only a few he had identified in his career, alongside 1929, 2000, and 2008. His message was blunt: when a superbubble bursts, the damage is rarely contained.

The numbers beneath the optimism

For those who dug into the data, the picture was even more troubling. By mid-November, the S&P 500 was farther above its 36-month moving average than at any point since the dot-com era. Goldman Sachs noted that investor equity allocations had reached 52 percent, levels only seen in 1999 and 2000.

Bank of America added more fuel to the fire when it published a striking statistic: 15 of the 20 valuation metrics it tracked were at least two standard deviations above their long-term averages. That included price-to-earnings ratios, market-cap-to-GDP, and enterprise-value-to-EBITDA multiples. These were not just rich valuations — they were historically extreme.

Technical indicators confirmed the sense of overextension. The S&P 500 was hugging the upper Bollinger Band through October and November, a sign of momentum but also exhaustion. The Relative Strength Index (RSI) reached overbought territory, flashing signals that in the past had often preceded sharp corrections.

The Hindenburg Omen and fractured internals

In early December, market technicians pointed to the emergence of the Hindenburg Omen, a dramatic-sounding signal named after the infamous 1937 airship disaster. The omen is triggered when large numbers of stocks simultaneously hit 52-week highs and 52-week lows while market breadth is deteriorating. It reflects a kind of internal schizophrenia: a market that looks strong on the surface but is deeply fractured underneath.

Critics argue the Hindenburg Omen has a high false-positive rate, and it certainly does not guarantee a crash. But historically, clusters of these signals have preceded some of the worst downturns in modern market history, including the crashes of 1987 and 2008. Its reappearance in December 2021 added to the sense that something was not right.

Cracks in the giants

Perhaps the most telling signs came not from obscure indicators but from the market’s own leaders. Meta Platforms (then Facebook) began to falter in September 2021, slipping below key technical levels and triggering sell signals for disciplined traders. By the end of 2022, it would lose more than 70 percent of its value. Other tech titans like Amazon, Microsoft, and Alphabet peaked in October or November, setting in motion declines that would reshape the Nasdaq. Tesla, the darling of 2020 and 2021, began its descent from a November high that would ultimately lead to a 70 percent drawdown.

When the leaders start to roll over, the broader market rarely holds up for long. What looked like isolated weakness in late 2021 proved to be the canary in the coal mine.

The unraveling of 2022

By January 2022, the external environment shifted dramatically. Inflation, once described as “transitory,” proved stubbornly persistent, forcing the Federal Reserve to abandon its easy-money stance and pivot toward aggressive tightening. Interest rates rose at the fastest pace in decades, putting pressure on valuations and sparking a re-pricing of risk across the board.

Geopolitical shocks added to the turmoil. Russia’s invasion of Ukraine in February triggered a surge in energy prices and intensified supply chain disruptions. The optimism of November 2021 gave way to fear and volatility. By June, the S&P 500 was down more than 20 percent, officially entering bear market territory. The Nasdaq fared even worse, losing more than a third of its value by year’s end.

Lessons from the turning point

Looking back, the fall of 2021 serves as a case study in how markets often whisper before they scream. The headlines in November celebrated record highs, but the data told a different story: narrowing breadth, extreme valuations, technical exhaustion, and even the eerie reappearance of the Hindenburg Omen. These were not guarantees of disaster, but they were clear warnings that the market’s foundations were unstable.

For investors, the lesson is not that every overbought signal or every omen will lead to catastrophe. Rather, it is that when multiple red flags align — stretched valuations, technical extremes, and leadership breakdowns — prudence is warranted. Those who paid attention to these signals in late 2021 had a chance to reduce risk before the storm of 2022.

In hindsight, November 2021 was not the triumphant peak it appeared to be. It was the calm before one of the roughest storms in a generation of investing.