The Dow Industrials has been on an extended runup despite the abounding headwinds, with analysts attributing the strength to the market's resilience and the Federal Reserve likely nearing the end of its rate-tightening cycle.
What Happened: At least one economist is of the view the market rally may run out of steam and a collapse could be imminent.
Noted economist and gold bull Peter Schiff noted that the Dow Industrial's 13-day winning streak is the longest since January 1987. “We all know how that year turned out,” he said.
“Investors ignored rising interest rates, a falling dollar, and rising budget and trade deficits until suddenly all that bade news mattered,” he added.
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Why It's Important: The year 1987 saw the collapse of the equity market following a five-year bull run. The Dow Industrials, an index comprising 30 blue-chip stocks, rallied from 776 in Aug. 1982 to a high of 2,722 in Aug. 1987.
The introduction of a bill to reduce the tax benefits associated with financing mergers and leveraged buyouts by the U.S. House Committee on Ways and Means on Oct. 14, 1987, served as a trigger. The mood was soured further by the trade balance report that showed a sharply higher deficit.
The Dow continued to fall through the week and plummeted about 22.6% on Monday, Oct. 19, 1987, often referred to as “Black Monday.”
This set off a sell-off in the rest of the financial markets and the other global markets. The Fed had to step in to bail out the economy and the markets.
There is a déjà vu feeling as all the excesses that led to the market collapse in 1987 are present currently. Interest rates are now at a 22-year high after Wednesday's 25 basis point hike to 5.25%-5.50%, the dollar strength is eroding and America has built up a huge debt pile.
The SPDR Dow Jones Industrial Average ETF Trust DIA, an exchange-traded fund that tracks the performance of the Dow Industrials average, rose 0.26% to $355.25, according to Benzinga Pro data.
Related Link: The Fed’s Influence Ripples Through US Stocks, ETFs: Wednesday’s Winners And Losers Revealed
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