Equating Current Market Trends with 1987's Black Monday

Political Maneuvers and Market Movements

Yesterday saw a broad increase in equity markets, with bond yields also rising to offset some of the losses from a disappointing jobs report and the unwinding of speculative Yen carry trades over the past two days. The S&P500 and NASDAQ both increased by around 1%, while the Nikkei surged by 10.23% after a significant loss the previous day. European markets, however, remained mostly unchanged. The US yield curve saw a bear steepening yesterday with 2-year yields rising 5.5bps and 10-year yields adding 10.3bps. The JPY has weakened in early trade this morning to 146.50 following comments from BOJ Deputy Governor Uchida, who suggested that the BOJ won't raise rates while financial markets remain volatile.

Comparing Today's Market with Black Monday

Many have drawn parallels between the recent market activity and the infamous Black Monday crash of October 1987. While the percentage falls this time are relatively modest, the sudden drop followed by a quick recovery does bear some resemblance. Both instances occurred when equities seemed overvalued following a strong bull run, both took place while US fiscal deficits were high, both followed a Fed tightening cycle, and both happened as the Dollar was under pressure against other currencies. The 1987 crash is often cited as a harbinger of the early 1990s recession in the United States, which came after a period of tight monetary policy and was marked by a banking crisis and oversupply in office real estate.

Political Changes and Potential Implications

Another parallel with the early 1990s might be the potential generational shift in Washington. Yesterday, Kamala Harris announced her selection of Minnesota Governor Tim Walz as her VP pick. Walz is viewed as a reliable choice who could appeal in battleground states. His progressive legislative record will likely resonate with the Democratic base. In another significant political move, Hamas announced that Yahya Sinwar, the mastermind behind the October 7 attacks, will succeed Ismail Haniyeh as the group’s political leader following Haniyeh's assassination in Tehran last week. This appointment comes as expected attacks from Iran and the ‘Axis of Resistance’ against Israel loom, in retaliation for Haniyeh's death.

Anticipating the Next Move

With Brent crude down to $76.50/bbl this morning, it seems that financial markets may have become desensitized to supply side risks in the Middle East, focusing instead on signs of weakening demand in the United States and China. While none of the involved parties seem eager for war, all have expressed a readiness to fight if necessary. Thus, the questions remain: when will the next blow come, how hard will it fall, and what will be Israel’s response?

Bottom Line

The current market trends and political maneuvers seem to echo past events, particularly the Black Monday crash and the early 1990s recession. However, it's important to remember that history doesn't always repeat itself exactly. What do you think about these parallels? Do you see them as valid comparisons or mere coincidences? Share your thoughts with your friends and join us for the Daily Briefing at 6pm every day.