Through repeated market history, we can see that market panics are occurring now as bond yields are increasing rapidly.

Investors are closely examining the current state of financial markets in search of signs reminiscent of past recessions, as the recent significant sell-off in bonds has sparked concerns of an impending downturn. In recent weeks, various aspects of the US market, including stocks, bonds, and housing, have been drawing parallels to previous occurrences. Some analysts have drawn comparisons between the stock market's current performance and that leading up to the crashes of both 1987 and 2008, while others see similarities between the actions of bond vigilantes now and in the 1990s. Additionally, there are striking resemblances between today's housing market and that of the early 1980s. These recurring patterns are evident in:

Stock market

1987 vs. 2023

Many on Wall Street are reminded of the events preceding "Black Monday" on October 19, 1987, known for its devastating impact on the stock market.

Despite the significant increase in bond yields and resulting market decline, US stocks continue to perform relatively well. This is reminiscent of the weeks prior to Black Monday, when the Dow plummeted by 22% in a single day, according to Albert Edwards from Societe Generale.

In a note released on Tuesday, Edwards stated, "The current resilience of the equity market in the face of rising bond yields is very similar to what occurred in 1987, when bullishness among investors eventually subsided." He added that any indication of a recession at this time would undoubtedly have a devastating impact on equities, just as it did in 1987.

2008 vs. 2023

JPMorgan's leading quantitative expert was reminded of the 2008 financial crisis due to overvalued stocks, optimistic attitudes, and a tightening monetary policy. In the years prior to the crash, the market was thriving as bullish individuals disregarded issues in the housing market caused by subprime mortgages. However, despite a strong rally earlier this summer, Marko Kolanovic stated in a recent note that our analysis still indicates difficult macroeconomic fundamentals and obstacles for high-risk assets. He further noted that while history may not repeat itself exactly, there are parallels between current conditions and those leading up to 2008.

Bond yields: 1990s vs 2023

Ed Yardeni, an experienced financial analyst and market expert, stated in a recent op-ed published in the Financial Times that bond vigilantes have made a resurgence. In the past, he had warned of their potential return and it seems they are now "saddling up" for a comeback.

Yardeni first coined the term "bond vigilantes" in the 1980s, referring to investors who sell off Treasury bonds in protest of government deficits. This phenomenon resurfaced again in the 1990s with what Yardeni refers to as the "Great Bond Massacre," where investors dumped Treasuries leading to a significant increase in yields. Now, with current market conditions reminiscent of those from decades ago, there is a sense of deja vu among investors.

According to Yardeni, the bond vigilantes' prime period was during Bill Clinton's presidency between 1993 and 2001. The administration made it a top priority to appease these vigilant investors. However, as Yardeni points out, they are now making a comeback.

In conclusion, Yardeni believes that bond vigilantes are once again a major factor in the market and should not be ignored. Their influence on Treasury yields could have significant consequences for both government policies and investor portfolios.

Housing market: 1980s vs 2023

According to Bank of America, mortgage rates have reached multi-decade highs as a result of the recent surge in bond yields. This, along with persistent inflation and a significant increase in demand from the younger generation, has led the housing market to resemble that of four decades ago.

The bank states that during this time period, baby boomers were entering their prime home-buying years while mortgage rates had doubled. Similarly, today's millennials are also entering the housing market as they mature, but facing high mortgage rates as well.

Based on historical trends, it is unlikely that home prices will continue to rise at this rate and may even slightly decrease. However, Bank of America believes that this decline will not be as drastic as seen during the 2008 housing crash.

In their statement released on Thursday, analysts emphasized that the current market is more similar to that of the 1980s than it is to the 2008 housing crisis.