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- In recent weeks, stocks, bonds, and housing have all drawn comparisons with previous episodes in US market history.
- Stocks are reminding some analysts of the late 1980s and 2008, while bond vigilantes are reliving the 1990s.
- The housing market also looks eerily like the early 1980s, when mortgage rates soared.
Investors are scouring financial markets for signals that echo previous recessions as the massive bond sell-off has raised fears of a downturn.
In recent weeks, stocks, bonds, and housing have all drawn comparisons with earlier episodes in US market history.
Stocks are reminding some analysts of the late 1980s and 2008, while bond vigilantes are reliving the 1990s. The housing market also looks eerily like the early 1980s. Here is where history is repeating itself:
Stock market
1987 vs. 2023
The stock market's resilience has Wall Street glancing back towards the run-up to the market crash on October 19, 1987, famously dubbed "Black Monday."
In spite of the blistering rally in bond yields that has triggered a market sell-off, US stocks are still doing relatively well. That recalls the weeks leading up to Black Monday when the Dow dropped 22% in one day, Societe Generale's Albert Edwards said.
"The equity market's current resilience in the face of rising bond yields reminds me very much of events in 1987, when equity investors' bullishness was eventually squashed," he wrote in a note on Tuesday. "Just like in 1987, any hint of recession now would surely be a devastating blow to equities."
2008 vs. 2023
Overvalued stocks, bullish posturing, and tightening monetary policy reminded JPMorgan's top quant guru about the 2008 crisis.
In the couple years leading up to the financial crash, the market had been performing well as bullish investors looked past a housing market beset by subprime mortgages.
"Despite the strong early-summer rally, our framework continues to point to challenging macro fundamentals and headwinds for risky assets," Marko Kolanovic said in a note late last month. "History doesn't repeat, but it rhymes with 2008."
Bond yields: 1990s vs 2023
Market veteran Ed Yardeni declared in a Financial Times op-ed Tuesday that bond vigilantes are back after previously warning that they are "saddling up" and could be staging a comeback.
He coined the bond vigilantes term in the 1980s, referring to investors selling off Treasuries to protest federal deficits. They came back in the 1990s for the "Great Bond Massacre" when investors dumped Treasurys, causing yields to skyrocket. Now markets are having a flashback.
"The bond vigilantes' heyday was the Clinton years, from 1993 to 2001," Yardeni wrote in the FT. "Placating them was front and center on the administration's policy agenda. Now they are back."
Housing market: 1980s vs 2023
Mortgage rates, following the spike in bond yields, have also breached multidecade highs, hovering around 7.5%.
Such high levels, along with persistent inflation, and pent-up demand from a demographic boom, have combined to make the housing market look eerily similar to four decades ago, Bank of America said.
Back then, baby boomers were entering their prime home-buying years just as mortgage rates had doubled. Similarly, millennials are increasingly entering the housing market today as they mature, with mortgage rates soaring too.
If the past is any guide, it suggests home prices are unlikely to rise from here, and could slightly fall, but not as much as they did during the 2008 housing crash, according to Bank of America.
"We think the 1980s are a better analogy for today's market than the 2008 housing crash," analysts said in a Thursday note.