Marketplace history of course does not necessarily repeat itself, either in whole or in part. However, sometimes it does. In any case, it should not be forgotten. Storytellers reveal (construct, create) parallels (and differences) between the marketplace past and present, not only to explain ancient times and the current situation, but also to predict future phenomena.
Coincidentally, the S+P 500’s recent high at 2019 on 9/19/14 occurred almost exactly on the sixth anniversary of Lehman Brothers’ 9/15/08 bankruptcy filing. Around the time of that autumn 2008 event, the fearsome worldwide economic crisis that emerged in mid-2007 accelerated.
Yet not so coincidentally, many recent intertwined dramatic marketplace moves in interest rate, stock, currency, and commodity arenas bear significant resemblance to those of the 2007-09 theater. Why? Problems now echo those of the prior period. Some troubles represented by that supposedly distant past have not been sufficiently fixed. In addition, some excesses of that long ago time, even if in somewhat different ways, have reappeared.
In regard to the current vista, underline several trend interrelations between key playgrounds. Focus on the time dimension in this context. Note not only the US Treasury 10 year note’s yield decline since its 1/2/14 top at 3.05pc (and the narrowing of the 10 year less two year UST spread), but also the UST’s yield slump from 9/19/14’s 2.65pc and its break under key support around 2.40 percent. The S+P 500 fell nearly ten percent following 9/19/14’s 2019 plateau. In addition, the recent peak in emerging marketplace stocks (“MXEF”; MSCI Emerging Stock Markets Index, from Morgan Stanley) on 9/4/14 at 1104 occurred close in time to both the S+P 500’s recent high as well as the rally in the broad real trade-weighted US dollar. Moreover, recall the sharp retreat in the broad Goldman Sachs Commodity Index since 6/23/14’s 673 interim top, particularly its recent decisive break under important support at 595/612.
The current and future marketplace theater probably will not duplicate the scope of the 2007-09 global economic disaster. Nevertheless, despite the passage of several years, significant deficit spending by America and other key nations, and widespread extraordinary central bank easy money policies (conjure up the Federal Reserve’s yield repression and money printing schemes), we have not entirely escaped the horrific days of the 2007-09 era.
The major bull move from the S+P 500’s 10/10/02 bottom at around 769 to 2007’s lofty 10/11/07 major high at 1576 lasted five years. The October 2002 bottom times two is 1538, or within about three percent the October 2007 peak. Since the S+P 500 achieved its major bottom on 3/6/09 at 667, its bull move has run about five and a half years, even longer than 2002-07’s advance. Whereas S+P 500 prices doubled over the 2002-07 span, 9/19/14’s height at 2019 triples March 2009’s major bottom (doubles 7/1/10’s 1011 trough; and jumps about 50 percent over 11/16/12’s 1343 low).
Given that the S+P 500’s major bull move since March 2009 was even longer-lasting and stratospheric than the preceding one, observers should be watchful for a very noteworthy S+P 500 decline, extending (or greater than) the one that so far since 9/19/14 has reached around ten percent. With parallels between the 2007-09 world and the current environment in mind (given the recent moves in the UST 10 year, emerging marketplace stocks, the broad real trade-weighted dollar, and the broad GSCI), the S+P 500’s 9/19/14 height probably represents an important top. If that top is broken, it probably will not be exceeded by much.
Incidentally, for those seeking further timing parallels in the S+P 500, the 9/19/14 date is not far from the October 2002 and 2007 calendar tops and bottoms (10/10/02; 10/11/07), but also 10/4/11’s important low at 1075.
Looking forward, since history need not repeat itself, the Fed’s eloquence and actions may not always achieve the goals the Fed diligently seeks. Continued or even increased easing, whether by the Fed or other important central banks, do not inevitably produce rallies in the S+P 500 (or a continued economic recovery).
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Talking the Talk- Marketplace Parallels (10-19-14) (1)
Charts- Ten Yr UST, S+P 500, GSCI, Corp Bond (10-19-14, for essay Talking the Talk- Marketplace Parallels)