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Tags: ed yardeni | market | melt | up | 1987 | crash

Ed Yardeni: End of 'Market Melt-Up' Will Resemble 1987 Crash

(Dollar Photo Club)

By    |   Monday, 16 October 2017 03:01 PM EDT

Economic guru Ed Yardeni is warning any overconfident investors that the current bull market just might be headed for a brick wall.

Yardeni said that a “market melt-up” is likely gripping the market, and its “ultimate demise could resemble the 1987 bust,” CNBC.com explained.

The Newsmax Finance Insider started calling the recent stock rally a "melt-up" in a 2016 blog and he renewed the term during the summer in various CNBC appearances.

The S&P 500 fell over 20 percent on the “Black Monday” crash of Oct. 19, 1987, while the Dow Jones Industrial Average slumped by 508 points, or 22 percent.

The 1987 crash is famously now known as a buying opportunity. The Dow industrials recovered in two years to reach previous highs reached in August 1987, Reuters reported.

Despite several rough periods for markets since, most notably the 2008-2009 financial crisis and the bursting of the 2000 dot-com bubble, the sheer magnitude of the one-day fall hasn’t been approached.

Now, if a 22-percent decline were to occur, trading would be halted on the New York Stock Exchange for at least one hour and possibly for the rest of the day, depending on what time such a plunge occurred.

As for today's market, Yardeni told CNBC that there is a 55 percent chance the market will continue to rise.

"A melt-up to a certain extent kind of creates its own demise. To the extent that this market continues to move higher, maybe starts to move higher at a faster pace, now that would indicate to me that a lot of investors are coming in a little late into this bull market, and doing it with ETFs," Yardeni told CNBC.

"As in 1987, they could create a sort of portfolio insurance effect where suddenly something happens."

Meanwhile, Yardeni predicted that a variety of market shocks could cause the walls to tumble around unprepared investors.

"Maybe the Fed will turn a lot more conservative about the bubble aspects of the market — at least rhetorically try to talk it down. Then if it starts to unwind the ETF positions, you could get something like 1987 all over again," he said.

"I'm not holding my breath because I do like to breathe. I'm not convinced we're going to get much out of Washington. There's just too much bipartisan division as opposed to agreement," Yardeni said. "The global economy is really what's driving this stock market higher. And, earnings and revenue are moving higher because the global economy is doing so well."

"''87 wasn't the end of the world. It was actually a great buying opportunity," Yardeni said.

Meanwhile, stocks continued to rise Monday on Wall Street.

But with the S&P already up 14 percent so far this year, investors are looking to justify the relatively high valuation of stocks through the earnings, Reuters reported.

“There aren’t many earnings out there so people are kind of pausing and waiting to see what happens in the next few weeks,” said Brent Schutte, chief investment strategist at Northwestern Mutual Wealth Management Company.

Dr. Ed Yardeni is the President of Yardeni Research, Inc., a provider of independent global investment strategy research. To read more of his blogs, CLICK HERE NOW.

(Newsmax wires services contributed to this report).

© 2024 Newsmax Finance. All rights reserved.

Economic guru Ed Yardeni is warning any overconfident investors that the current bull market just might be headed for a brick wall.
ed yardeni, market, melt, up, 1987, crash
Monday, 16 October 2017 03:01 PM
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