It's 1998

Right before the market turned lower in February, I posted: End of Rally or End of Bull: Is It 1987, 1994, 1997, 1998, 2000, 2007 or 2014?

The centerpiece of that post was price ratio of the Dow Jones Industrial Average and the 30-year bond price. I wrote:
Stocks are more overbought relative to bonds than in 1998, 2000, 2007 and 2014
Comparably overbought periods were in 1987 and 1997.

All the overbought periods marked a short-term top in the markets (such as the 1987 crash). There was one exception: 1997. There was a dip in the stock/bond ratio in 1997, but it went on to a new high in 1998 before a major correction unfolded. Stocks would then go on to peak in 2000 as bonds bottomed, but as the ADX line below shows (black), the 1997 market decline marked the peak in stock/bond trend strength.

The difference between 2018 and 1998 is the trend strength is still rising. (The S&P 500/30yr ratio is already at a new high). Maybe this time is different (for the ratio) because bonds will lead the decline, but in either case a big correction in stocks looks very likely in the coming months.

ZeroHedge: BofA: This Is A Redux Of The 1998 Crisis.... Just One Thing Is Missing
And while the divergence observed between the US and the rest of the world may appear unique, it has happened on various occasions in the past, most notably in 1998.

Which brings the next question: Is the current market a redux of 1998? To Hartnett the answer is yes for the following reasons:

Fed tightening,
US decoupling,
flattening yield curve,
collapsing EM,
underperforming levered quant strategies
All of these echo ’98; but one thing is missing: global contagion.

For those who may not remember - or have been born - back in 1998 it was Japan that spread Asian crisis in ’98 (China)

...Fast forward 20 years when the BofA CIO believes that this time Europe will be the epicenter of the 2018 global contagion, with the collapse in foreign orders of German capital goods -12% past 7 months – a harbinger of what is coming.

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