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Top strategist sees ‘echoes of the 1987 crash’ in today’s stock market. ‘All you can do is brace yourself and hope for the best’
On Oct. 19, 1987, the Dow Jones industrial average plummeted 22.6% in what would later become known as Black Monday. The causes of the crash are still debated to this day, but the severity of its impact is not. Stock market losses in October hit $1.7 trillion globally as 19 out of the 23 major markets experienced drops of over 20% for the month.
Now, Albert Edwards, a global strategist at French investment bank Société Générale, is worried history may repeat itself. The stock market’s strength in 2023 despite the economy-slowing effects of higher interest rates is a combination that feels awfully similar to the days when Ronald Reagan was president, the typically bearish and often sardonic strategist warns.
As the lure of safe returns grows with every jump in Treasury yields, pulling investors away from the riskier stock market, Edwards is hearing “echoes of the 1987 crash.”
“The equity market’s current resilience in the face of rising bond yields reminds me very much of events in 1987, when equity investors’ bullishness was eventually squashed,” he explained in a Tuesday note. “As U.S. bond yields surge ever higher, do you feel like you are in a car you just know is about to crash but are powerless to stop?”
Edwards said that “increasing uncertainty” about the future of the U.S. economy amid rising interest rates coupled with “fiscal dysentery”—a crude reference to the record budget deficits and political gridlock in Washington that have nearly led to multiple government shutdowns—have helped drive the 10-year Treasury yield over 4.7%. Essentially, investors now require more compensation for the increased unpredictability of holding longer-term debt.
“Never in my career have I witnessed such uncertainty about where we are in the economic cycle. Is that long promised recession still lurking around the corner, or are we at the start of a new economic cycle? Many investors are apparently increasingly convinced it’s the latter,” Edwards wrote. “My own view is that a recession still lurks.”
The strategist believes that there is “still plenty of evidence to suggest a recession is imminent,” warning that “just like in 1987, any hint of recession now would surely be a devastating blow to equities,” which are priced for a soft landing scenario in which the economy recovers from its current turbulence without a significant increase in unemployment.
He pointed to the recent drop in trucking jobs, arguing it “typically signals a recession is dead ahead,” as well as the ongoing surge in corporate bankruptcies and the contracting money supply.
Citing a fellow bearish economist, David Rosenberg, Edwards also noted that recent revisions to the second-quarter GDP report showed that gross domestic income (GDI) growth—a measure of economic activity that is often used as a proxy for Americans’ “earnings”—hasn’t been nearly as robust as imagined. When you account for inflation, so-called real GDI growth fell to just 0.2% year over year in the second quarter.
“The trend has never been this low, not ever, without a recession taking hold. The ‘soft landing’ is over,” Rosenberg wrote of the data in a recent note. To which Edwards added in a rebuke of his bullish critics: “Put that in your pipe and smoke it.”
While Edwards fears a repeat of Black Monday, the causes of that crash are still widely debated, and the two periods aren’t exactly the same. It’s true that through the first seven months of this year and in 1987, both interest rates and stock prices rose in unison, but the lead up to that dynamic 35 years ago was very different from what has happened in recent years.
After years of rampant inflation in the ’70s, then Fed Chairman Paul Volcker hiked interest rates to a peak of around 19% in early 1981. Then, with inflation slowly fading, he cut rates to just 5.9% by September 1986. This led the Dow Jones to soar 250%, from 776 to 2,722, between August 1982 and its peak in the same month in 1987.
The end of that run is the period that Edwards believes is so similar to today. Between September 1986 and October 1987, interest rates rose from 5.9% to 7.3%. But over roughly the same period, the Dow Jones industrial average continued its rise, jumping 45%, as investors retained their bullish outlooks after years of gains. That was before it all came crashing down on Black Monday.
Similarly, this year, interest rates have jumped, but so has the market as many investors remain bullish, and that gives Edwards pause.
Still, some traders have blamed Black Monday on newly implemented computerized trading programs that were programmed to sell stocks automatically when major indexes fell. And others have even blamed tax changes that would have made corporate takeovers, which had become incredibly common in the ’80s, more costly.
Yale economics professor and Nobel Prize winner Robert Shiller also found in a 1987 survey of both institutional and individual investors that a general “crash mentality” had developed in the U.S. at the time owing to fears of high stock market valuations, rising private and public debts, the declining strength of the dollar, and the potential negative effects of the birth of “portfolio insurance”—the hedging of market risk, typically via the short-selling of futures for stock market indexes. And not all of these risks are relevant now.
Still, Shiller warned in a 2017 New York Times op-ed that a similar crash mentality and subsequent panic could happen again, especially if interest rates rise quickly, noting that investor psychology never truly changes. Edwards fears that day may come sooner rather than later as the Fed continues its fight against inflation. At this point, as he says, maybe “all you can do is brace yourself and hope for the best.”
The good news? The aftereffects of Black Monday were somewhat limited economically, partly owing to government and central bank intervention. The U.S. didn’t fall into a true recession until 1990, after the savings and loan crisis rocked the financial industry and the Persian Gulf crisis caused oil prices to spike. By that time, the stock market had recovered, jumping 40% from its November 1987 low.
注释：
plummet: v
表示" 垂直落下；暴跌"，means "drop sharply"，如：Just watch your electricity bills plummet! 您的电费帐单将直线下降!
sardonic: adj
表示" 讥讽的；嘲笑的；冷笑的"，means "disdainfully or ironically humorous; scornful and mocking"，如：There was a sardonic expression on her face. 她脸上有一种嘲讽的表情。
resilience: n
表示" 适应力；弹性"，means "the physical property of a material that can return to its original shape or position after deformation that does not exceed its elastic limit"，如：She has shown great resilience to stress. 她对压力表现出了极大的适应能力。
equity: n
表示" 公平,公正; 普通股"，means "ordinary stocks and shares that carry no fixed interest"，如：The equity of the referee's decision was accepted by everyone. 大家都同意裁判员的公正裁判.October was a mixed month for global equity markets. 对全球股票市场来说，十月是一个充满变数的月份。
Bullishness: n
表示"景气现象"，如：The bullishness is partly justified. 牛市气氛也算合理.
dysentery：n
表示" 痢疾"，means "an infection of the intestines marked by severe diarrhea"，如：He was attacked with dysentery . 他患了痢疾。
gridlock: n
表示"僵局"，means "a traffic jam so bad that no movement is possible"，如：But he is acknowledging continued partisan gridlock in Congress. 但他承认在国会党派僵局仍然存在。
lurk: v
表示"潜藏；潜伏"，means "ie in wait, lie in ambush, behave in a sneaky and secretive manner"，如：Danger lurked in the atmosphere. 氛围中隐藏着危险。
imminent: adj
表示"逼近的；即将发生的"，means " (usually with reference to sth unpleasant) probably about to happen soon"，如：He was faced with imminent death. 他面临逼近的死亡。
devastating: adj
表示"毁灭性的；破坏性的；"，means "wreaking or capable of wreaking complete destruction"，如：A smouldering cigarette can kindle a devastating bushfire. 闷燃着的香烟会引起毁灭性的林区大火。
proxy: adj
表示" 代理的;代理人"，means "a person authorized to act for another"，如：How can I determine my proxy settings? 我怎么知道我的代理服务器的设置?She is acting as proxy for her husband.
她作她丈夫的代表。
rampant：adj
表示" 猖獗的；蔓延的；"，means "(especially of disease,social evils) unchecked;beyond control"，如：Sickness was rampant in the country. 疾病在这个国家猖獗。
hedge: v
表示" 用树篱围；避免直接回答;受…的束缚"，means "be full of or surrounded by"，如：When I'm asked about this on occasion,I hedge the question too.偶尔有人向我提这个问题时，我也避免直接回答。
中文简要说明：
1987年10月19日，美国道琼斯工业平均指数暴跌22.6%，后来被称为「黑色星期一」（Black Monday）那年10月份，全球股市损失达1.7兆美元（约新台币54.77兆元）23个主要市场中有19个在当月跌幅超过20%。法国兴业银行（Société Générale）的全球策略师艾德华（Albert Edwards）担心历史可能重演，现在市场、政策等多项指标都趋近于「那一天」。
据美国《财星》（Fortune）报导，艾德华警告高利率对经济产生了拖累作用，但2023年股市的表现更让他感到不安，这种情况与里根时代非常相似。随着美债利息飞升，投资人对于低风险回报的兴趣逐渐增加，自然将资金从风险较高的股市中拉走，艾德华表示彷佛看到了「1987年崩盘的回响」他在本周的报告中解释道：「面对美国国债收益率不断上升，你是否感觉自己坐在一辆明知即将车祸。但无能为力停下来的车里？」
他认为「不确定性日益增加」涉及美国经济的未来，随着利率上升，再加上「美国财政危机」即美国刷新历史高峰的财政赤字以及政治僵局已将10年期国债收益率推升至4.7%以上。
他写道：「在我的职业生涯中，我从未见证过像现在这么多的不确定性。」他认为仍然有大量证据表明衰退在即，警告称「就像1987年一样，现在任何关于衰退的暗示都必将对股市造成毁灭性打击」他指出最近卡车司机工作的下降，认为这「通常意味着衰退即将来临」以及企业破产不断增加，和货币供应缩减的持续增长。
艾德华认为，那段期间的结束情景与今天非常相似。在1986年9月至1987年10月的大致同一时期，利率从5.9%上升至7.3%。但在这段时间内，道琼斯工业平均指数持续上升，增幅达到45%，投资者保持了多年来的看涨态度。这一切都在黑色星期一爆发之前。同样，今年利率上升，但由于许多投资者仍然持看涨态度，股市也有所上涨，这使艾德华感到担忧。
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