Following a week in which markets delivered their fastest-ever correction (i.e., a 10% decline from a recent peak), the question looming large is just how far equities will drop before they stabilize. The extent of the market and economic impact depends on how individuals change their behavior in response to a new global pandemic (yes, we think we’re ready to use the “p” word). With apologies for the bias reflected in the historic naming conventions, we find the Asian Flu of 1957-58, the 1958 Eisenhower Recession and the 1957 Bear Market to be interesting comparisons to today – so much so we are now predicting mild U.S. and European recessions in our base case.
In this report we look back on the Tech Bubble peak, not so much the frenzy that led up to it, but mainly the events that may have caused the “pop”. We find some interesting similarities between markets today and markets back then – ones that go well beyond the recent price action. Overall, we can’t help but have that déjà vu sensation, so much so that we believe there’s a good chance that we have put the top on this very long-lasting bull market.
Government reports are questionable, the science is in hypothesis-stage and historical analogies don’t quite fit, but just how the coronavirus epidemic/pandemic plays out may determine.
There is a market adage that goes something like, “Bull markets are born in fear, and die in euphoria.” In February 2018, while some were.