It May Be Different This TimeStocks have recently experienced selloffs reminiscent of the subprime crash and Covid. However, there might be something different this time.
This monthly chart of the S&P 500 highlights the three moments in history. The Global Financial Crisis is marked in white. The coronavirus pandemic is in teal and the tariff selloff is colored yellow.
Simple price action on the stock index is mostly comparable, with large solid red candles revisiting levels from months (or years) prior.
Two other charts, however, paint a different picture. They represent risk-off “safe havens” that typically move a certain way versus the “risk-on” S&P 500. The U.S. dollar index typically climbs during sharp downturns in the stock market and the 10-year Treasury yield usually falls as bond prices rise.
The current period, however, has seen the U.S. dollar bleed lower. This is especially puzzling because higher tariffs should reduce imports, which in turn should reduce selling of the greenback.
The 10-year Treasury yield has also made a small move relative to the stock market’s dramatic volatility. TNX broke to multiyear lows during the last two crashes, but this time it’s holding levels from October.
Aside from the apparent anomaly, there could be a few takeaways from this price action.
First, GFC and covid happened during a major secular bull market in Treasuries. But since the pandemic, yields have shown signs of a longer-term upside reversal. If that new trend continues, it may weigh on stock sentiment well into the future.
Second, weakness in the greenback has corresponded to weakness in U.S. stocks. That may reflect capital outflows away from the U.S. as a general market.
Third, the labor market has been resilient. A continuation of that strength could prevent the Fed from cutting interest rates. In other words, it could be the opposite of Goldilocks: an economy that’s too cold to drive profit growth but too warm to justify rate cuts.
Given this potentially challenging mix of factors, investors may ask whether a new secular bear market has begun.
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