Stock and bond markets are doing a strange thing that is reminiscent of the 1987 crash

Discussion in 'Property Market Economics' started by GentleChief, 10th Feb, 2018.

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  1. GentleChief

    GentleChief Well-Known Member

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    • David Rosenberg says a rise in the 10-year Treasury yield during a stock market drop seldom occurs.
    • This rare occurrence of bond yields rising even as stock markets decline was a feature in 1987 and 1994 crashes
    Wall Street is buzzing over what the recent sell-off in the stock market means for investors and what will happen next.

    Gluskin Sheff and Associates' David Rosenberg found one aspect of the decline very peculiar and warned it is similar to time periods with significant market turmoil.

    The S&P 500 fell officially into correction territory on Thursday, down more than 10 percent from its record reached in January.

    Rosenberg noted how the yield on the 10-year Treasury note rose 16 basis points during the drop.

    "I cannot tell you how rare a market condition this is – that yields are rising into this risk pullback," he wrote in a note to clients Friday.

    Rosenberg cited how bonds rallied during the financial crisis in 2008 when the market fell and during other big corrections.

    "But not this time. This rare occurrence of bond yields rising even as stock markets decline was a feature in 1987 and 1994," he added. "What these periods had in common was Fed tightening concerns, jitters over economic overheating and an ever-flatter yield curve. One of these years had a huge correction and one had massive volatility and rolling corrections. Pick your poison."

    In terms of the "huge correction" reference, he is referring to the "Black Monday" stock market crash when the Dow Jones industrial average dropped 23 percent on Oct. 19, 1987.

    Rosenberg is the chief economist and strategist at Gluskin Sheff - CNBC

    So here is the question:

    Does anyone see that with this news, Interest rates in Australia are set to rise in the near term?
     
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  2. Trainee

    Trainee Well-Known Member

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    Dow Jones
    End 1993 3754.09
    End 1994 3834.44
    End 1995 4003.33

    Bonds went nuts. Shares were ok.
     
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  3. Silverson

    Silverson Well-Known Member

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    Tiny bit off topic but how many times in the past has Americas credit rating been downgraded, is there any historical information on this?
    Thanks in advance
     
  4. willair

    willair Well-Known Member Premium Member

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    Your hunch is maybe right,another black monday or friday could well be on the cards the way everything is starting to unfold worldwide but there is a catch..
    The problem is like before every time --money comes with obligations and compensations with getting the money in the first place failing to meet those obligations is when the s### hits the high speed fans..
     
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  5. GentleChief

    GentleChief Well-Known Member

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    Only once.
    S&P downgraded US from AAA (outstanding) to AA+ (excellent).
    On 5th Aug 2011 per Wall Street journal.
     
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  6. GentleChief

    GentleChief Well-Known Member

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    True. Markets sentiments are Jittery.

    Traditionally, money has been moved from Speculative (Stocks) to Defensive assets (Bonds) in times of Fear. But not this time around.

    Money is fleeing the Markets (if fleeing is the right term) - and turning into Cash.
    Which in a way could be 'self-fulfilling' and disastrous to the market in the short term.
     
  7. Trainee

    Trainee Well-Known Member

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    For retail investors with cash, thats a good thing.