Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24
US House Prices Trend Forecast 2024 to 2026 - 11th Oct 24
US Housing Market Analysis - Immigration Drives House Prices Higher - 30th Sep 24
Stock Market October Correction - 30th Sep 24
The Folly of Tariffs and Trade Wars - 30th Sep 24
Gold: 5 principles to help you stay ahead of price turns - 30th Sep 24
The Everything Rally will Spark multi year Bull Market - 30th Sep 24
US FIXED MORTGAGES LIMITING SUPPLY - 23rd Sep 24
US Housing Market Free Equity - 23rd Sep 24
US Rate Cut FOMO In Stock Market Correction Window - 22nd Sep 24
US State Demographics - 22nd Sep 24
Gold and Silver Shine as the Fed Cuts Rates: What’s Next? - 22nd Sep 24
Stock Market Sentiment Speaks:Nothing Can Topple This Market - 22nd Sep 24
US Population Growth Rate - 17th Sep 24
Are Stocks Overheating? - 17th Sep 24
Sentiment Speaks: Silver Is At A Major Turning Point - 17th Sep 24
If The Stock Market Turn Quickly, How Bad Can Things Get? - 17th Sep 24
IMMIGRATION DRIVES HOUSE PRICES HIGHER - 12th Sep 24
Global Debt Bubble - 12th Sep 24
Gold’s Outlook CPI Data - 12th Sep 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Sorry But This Is Not 1997 for the Stock Market

Stock-Markets / Stock Markets 2015 Mar 14, 2015 - 04:27 PM GMT

By: Sy_Harding

Stock-Markets

Several months ago I wrote of how super bull markets that last nine or ten years have been once in a generation situations, the last ones being those of the 1920’s and the 1990’s, but that there were enough similarities to 1997 in the current bull market that it could possibly make it into that category.

In 1997, the 1990’s bull market had also been underway for six years, which had the market already overvalued by traditional measurements. However, investors were convinced it was under the protection of the Fed and the ‘Greenspan Put’, and the bull market accelerated further to the upside (into what became the infamous 2000 bubble).


The current market is likewise overvalued by the same traditional measurements, and investors are convinced it is under the Fed’s protection via the ‘Bernanke/Yellen Put’.

In another similarity, the 1990’s bull market had begun with the economy in recession, with government debt and budget deficits at scary record highs. However, by 1997 the anemic economic recovery was accelerating, and the budget deficits were coming down.

This time around, the economy has also been pulling anemically out of recession, the market is in a six-year bull market, and Federal budget deficits are coming down from record highs.

Unfortunately, the other positive developments that seemed to be in place several months ago have faded away quite dramatically.

Last fall, it looked like the economic recovery was accelerating dramatically, as it had in 1997. GDP growth jumped from a recessionary - 2.1% in the first quarter of 2014 to 4.5% in the second quarter, then 5.0% in the third quarter. It looked to be headed toward robust growth above 6%, as was seen in 1997 (and which continued to 2000).

However, economic growth has suddenly plunged again, back down to only 2.2% in the fourth quarter, and is forecast to come in as low as 1.7% in the first quarter of 2015, as negative economic reports continue for the first three months of 2015.

In yet another negative turnaround, the rate of inflation, which climbed toward the Federal Reserve’s stated target of 2% last summer, has plunged since, all the way into negative (deflationary) territory in January.

And Friday’s report is that the Producer Price Index unexpectedly came in at - 0.5% in February, its fourth straight monthly decline, versus the consensus forecast for a rise of 0.4%.

The inflation rate in 1997 averaged 2.2%, and the Fed says it needs 2% inflation now to support economic growth. Unfortunately, while it looked last summer like it might get its wish, inflation is now moving in the opposite direction again, and aggressively enough to be raising deflation concerns.

The result is that, while last summer the situation was beginning to look bullishly like 1997, in the six months since the economy has taken on a much more worrisome appearance.

The stock market, focused more on the intentions of the Fed than on the economy, has also taken on a worried look, anxiously awaiting the Fed’s FOMC meeting next week, whether it will indicate that the ‘Yellen Put’ remains in place, or if the Fed will signal it is close to raising interest rates regardless of the market’s concern.

It is a potential lose-lose scenario. If the economy is slowing so much the Fed does not dare go ahead with its plan to begin raising interest rates as early as June, the stock market traditionally does not like a slowing economy. That was seen in the 20% market correction in 2011, even as the market supposedly remained under the protection of the ‘Bernanke Put’. Yet if the Fed remains resolute in believing the time has come to begin raising interest rates, the market does not like rising interest rates.

These latest situations, added to previous concerns about valuation levels and investor complacency, feed into my warnings to “Remain bullish – but watchful”, and expectation that the market in 2015 is going to experience a substantial correction with a significant low in the October/November period.

Sy Harding is president of Asset Management Research Corp., and editor of the free market blog Street Smart Post.

© 2015 Copyright Sy Harding- All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Sy Harding Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in