When the stock price fell sharply last week, it was

When the stock price fell sharply last week, it was sometimes mentioned that it was similar to Black Monday in October 1987. The circuit break system was introduced as the stock price fell more than 20% in one day. The reason for the stock price plunge at the time was still mysterious. Of course, it is investor sentiment that is driving the stock price plunge. It is an uneasy sentiment. At the time, the Fed was raising interest rates. This is because inflation exceeded 4% in an instant. Big hands concerned about the deterioration of liquidity due to additional interest rate hikes would have thrown it ahead, and the stock price decline would have dominated market sentiment with the cascade effect as other investors sold out in succession. Of course, there must have been the impact of derivatives-related leverage.

The position in the business cycle, however, is the biggest distinction between the present and 1987. The beginning of economic expansion, the longest since World War II, was in 1987, getting rid of the early-mid-1980s recession. Although the unemployment rate was higher than it is today, it was on a solid downward trend. As a result, after Black Monday, the stock price quickly recovered and soon passed its all-time high.

Now, the situation is more similar to 2007, a year before the 2008 global financial crisis. They have several things in common. Through June of the previous year, the Fed raised its key interest rate to 5.25%. It raised it from 1% in 2004 and raised it from 0% in 2022. The Fed maintained the 5.25 percent high interest rate for a year. It was flustered over concerns over possible price instability. At that time, housing prices fell fast. The worst bubble ever burst due to high interest rates. The unemployment rate also rose fast. In January 2008, the Fed's rule that if the unemployment rate rises 0.5 percent from the low point of the three-month average for the last three months, it will fall into a recession. In September of that year, the Fed stepped on the big step at the FOMC and started cutting the 50 bp rate. The previous month, it held an emergency meeting in August and decided on liquidity supply. However, it failed to prevent the recession. The recession officially began in December 2007.

As the unemployment rate reached 4.3% in July, the Samui rule is still in effect. Clidio Sam himself said months ago that a recession is unlikely this time. However, there is a high possibility that his law will be correct again. Of course, financial institutions' hawks are better than in 2008. A banking crisis like then will not occur in all directions. However, if you look closely, the situation at banks is not green and green. The delinquency rate is rising. Some say that the unemployment rate has risen in the short term due to the hurricane, but there is a high possibility that the unemployment rate will rise based on the trend. This is because the elasticity of economic growth has reached its limit. Of course, prices are the drag on economic growth. Continued high prices will kill household consumption, corporate sales, and eat away at the net profits of listed companies. Stock prices will fall, companies will restructure, unemployment will increase, and housing prices will fall. Of course, stock prices come first and housing prices later. To make matters worse, the current situation is a bubble of technology stocks as in 2000. The market will plunge and surge, but it will be difficult to see a bull market like last year and early this year. History goes around.