Skyrocketing real estate, rising volatility, rising commodities and falling stocks: Sound familiar?
Last week marked the 13th anniversary of the trough of the 2007-2009 global financial crisis. The March 6, 2009 stock market low for the S&P 500 marked a staggering 51.9% overall loss in value.
The financial crisis of 2007-09 resulted from excessive risk taking by global financial institutions, which led to the bursting of the property market bubble. This, in turn, led to a broad meltdown in mortgage-backed securities, resulting in a dramatic global financial reset.
Does History repeat itself?
The following chart shows us that precious metals and energy are outperforming the stock market as the bull cycle matures. The stock market continues to lead, followed by the economy, then commodity markets. But history has shown that commodity markets can rise dramatically when the stock market falters.
Table of economic performance.
The current commodity rally started in August 2021, April 2020 and January 2022. Interestingly, we started to see capital outflows in the SPDR® S&P 500 (NYSE:) in early January 2022, and Direxion stocks Daily Real Estate Bull 3X (NYSE:) from the end of December 2021.
Let’s see what happened to the stock and commodity markets in 2007-2009
SPY – ETF SPDR S&P 500 TRUST
From August 17, 2007 to July 3, 2008: SPDR S&P 500 ETF Trust depreciated by 20.12%
The State Street Corporation (NYSE:) designed SPY for investors looking for a cost-effective and convenient way to invest in stock index price and yield performance. From the State Street website www.ssga.comthe benchmark, the S&P 500 Index, comprises selected stocks of 500 issuers, all listed on national stock exchanges and covering approximately 24 distinct industry groups.
DBC – INVESCO DB COMMODITY INDEX TRACING FUND ETF
From August 17, 2007 to July 3, 2008: Invesco DB Commodity Index Tracking Fund appreciated by 96.81%
Invesco has designed DBC for investors looking for a cost effective and convenient way to invest in commodity futures. According to the Invesco website www.invesco.comthe index is a rules-based index comprised of futures contracts on 14 of the world’s most traded and largest physical commodities.
Watch Out: Fed Reserve Policy Meeting Coming This Week
In February, the rose to 7.9% as food and energy prices pushed prices to their highest level in more than 40 years. Excluding food and energy, the CPI still rose 6.4%, which was the highest since August 1982. Gasoline, groceries and housing were the main contributors to the rise in the CPI. The consumer price index is the price of a weighted average basket of consumer goods and services purchased by households.
The Fed was expected to raise interest rates by 50 basis points at its policy meeting this week, March 15-16. However, given the recent Russian-Ukrainian war in Europe, the Fed may decide to be more cautious and raise rates by just 25 basis points.
How will rising interest rates affect the stock market?
As interest rates rise, the cost of borrowing becomes more expensive. Rising interest rates tend to affect the market immediately, while it may take around 9-12 months before the rest of the economy sees a widespread impact. Higher interest rates are generally negative for equities, with the exception of the financial sector.
Will rising interest rates burst the real estate bubble?
It is too early to say exactly what impact rising interest rates will have on housing. It should be noted that in a booming economy, consumers continue to buy. However, in our current economy, where consumers’ monthly payment does not keep pace with gas and food prices, they are more likely to experience a stabilization in residential prices or even the risk of a repeat of price depreciation. in 2007-2009.
The potential for outsized gains in a bear market is 7 times greater than in a bull market
The average bull market lasts 2.7 years. Since the March 2009 low, the current bull market has set a new record as the oldest bull market at 12 years and nine months. The average bear market lasts just under 10 months, while a few last several years. It should be noted that bear markets tend to fall 7 times faster than bull markets rise. Bear markets also reflect high levels of volatility and investor emotions, which contribute significantly to the speed of market decline.