In my last post - A Look Back to Black Monday - I reviewed the performance of US equities, bonds and USD in the run up to the 1987 stock market crash. From 1981 to 1986, US equities and bonds went on a tear. The S&P 500 rallied +237% from 1982 to 1987, while bonds surged +84% higher. The USD ran up +68% and then collapsed -42%. The combination of an overvalued stock market, overly bullish investor sentiment, a collapsing currency and automatic trading programmes in place at the time resulted in the panic now known as Black Monday.
Today, stocks are more expensive, debt levels are much higher across the board and interest rates are much lower too (but rising sharply in the US). The US stock market has rallied +174% from 2012 to the top in September 2018. US Treasuries added +50% from 2013 to 2016 before falling -23% over the last two years. The USD added +43% from 2012 to 2017 before declining -15% over the last 15 months. The similarities between stocks and bonds are uncanny. The stock market already looks like it is in trouble. If the USD starts to break lower from hear, watch out.
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