Yahoo Finance Investors invoke ghosts of markets past
In a market noisy with mixed messages and conflicting signals, Wall Street can't even decide what year it is.
Once again, it's become popular among traders and market handicappers to argue that today's conditions are eerily similar to some momentous year in the past.
Charts showing the current action synched up with earlier cycles are flying around - each picture implicitly promising 1,000 important words on what will happen next. And each one prompts even more words of disagreement over its meaning.
So, for example, there's a chart matching up the recent pattern in the S&P 500 (^GSPC) to its path in 1937, which suggests a nasty market top has been hit. In 1937, a five-year post-crisis rally gave way to a bear market as the Fed prematurely tightened policy and Washington cut spending. Oh, and World War II was brewing in Europe and Asia.
Note that the chart's scales are mismatched, so the magnitude of recent gains doesn't fit with those 78 years ago. But no matter – most of the propagators of these historical charts are out less for accuracy than for drama, or to support their market stance.
Other folks, such as the consistently bearish fund manager John Hussman, have graphs suggesting that the market conditions and investor sentiment context neatly match those of 2000 and 2007 – yes, two years in which 50% market collapses began.
We're also getting ominous comparisons of China's (000001.ss) wild surge-and-swoon stock market of the past year to the Nasdaq (^IXIC) meltup-and-meltdown of 1999 and 2000.
Credit-minded investors are concerned that the divergence of weak corporate-bond action and steady US stock prices resemble 2008, as the Financial Times notes today. And then there are the frequent invocation of the 1998 emerging-markets crisis, to spotlight the risks of today's bearish turn on EM currencies and stocks.
One more original and rather less alarming analogy is being drawn by technical strategist Jonathan Krinsky of MKM Partners, matching the S&P 500 now the that of the year 1962 – which saw one of the few 20%-plus bear markets not related to a U.S. recession. He's not predicting a repeat, but feels the hazards are worth minding.
Notice that almost all of these are scary comparisons to years of investor anguish and drama. It's understandable that people are still alert to such searing images from the collective memory, given the magnitude of the financial crisis and two market washouts within a decade's time.
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Yet one could also argue that the traumatic experience as made investors believe that there are no real possibilities besides a heedless levitation in stocks or utter, comprehensive collapse.
Many observers have been suspect of this bull market the entire run, insisting it was nothing but central bank pumping and corporate financial engineering at work. Sour grapes have been selling well for six years now.
But what about more ambiguous, in-between examples of similar years that didn't immediately result in disaster. Like 1986, when we had a supply-driven oil crash, a US consumer rebound, somewhat greater capital-markets volatility and lots of M&A?
Then there's 2005, a mid-cycle pause in which the stock market was uncommonly flat and the Fed was slowly removing stimulus?
Part of the appeal of mining history for touchstones is that in the markets – as the man said of Hollywood – nobody knows anything about what's going to happen. So indulge the debate over what year it is just to gain some perspective on the possibilities, as I've frequently done. But in the end, this is the stuff of barstool arguments – easy to start, impossible to settle, and rooted in each person's biases.
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