Eerie Parallels: January 2018 - January 1987

                             "History doesn't repeat itself but it often rhymes"
                                               Attributed to Mark Twain

The amazing run of stock prices since the start of the year has me thinking about a similar rise in January 1987. Thus far this month the S&P 500 is up 7.5%, not as extreme as 13.2% gain recorded in 1987, but nevertheless quite a move. We all remember what happened after that as stocks continued to a gain of 39% by August, but to give it all back and then some by October. From peak to trough the S&P 500 declined by 33%. However by year end the index ended up for the year by a nominal 2%.

The parallels to 1987 look striking when we look at the economic back drop then and compare it to today. Because history rhymes I will also note a few striking differences.

                                               Simlarities

Indicator                                     January 1987                     January 2018

S&P 500                                       +13.2%                               +7.5%*
Extended Bull Market                Started 8/82                     Started 3/09
Computer Trading                      Portfolio Insurance         Algo Trading
Economy                                    Strengthening                      Strengthening
Profit Growth                             Accelerating                         Accelerating
Dollar                                         Weakening                           Weakening
Oil Prices                                    Up from lows.                     Up from lows
Inflation Rate                             Increasing                            Increasing
Fed                                             Tightening                           Tightening
10-Year Treasury Yields            Bottoming, about to rise    Rising       
Pro-Growth Tax Reform            1986 Tax Act                     2017 Tax Act
Trade Tensions                           Japan/Germany        China/NAFTA
White House Scandal                Iran/Contra        Russian Interference

                                                 Differences

Europe                                        Uniting                                   Dividing
Big Power Rivalry                      Declining                               Increasing
Shiller CAPE                               14X                                        35X

*-As of January 26.

To me the parallels to 1987 are too striking to ignore. So if 2018 stock market rhymes anywhere near its 1987 history we should see a continued advance in stock prices through the summer with the S&P 500 rising well above 3000 and then a severe decline thereafter with stocks ending the year with a modest gain. Fasten your seat belts; it's going to be a wild ride.