Today’s financial panic looks like the stock market crash of 1987 – when the economy avoided a recession, says a market expert.

“This is very reminiscent, so far, of 1987,” Yardeni said on Bloomberg Television’s. Bloomberg Surveillance. “We had a stock market crash – that all happened in one day – and the implication was that we were on the brink of collapse. And that never happened at all. It was has a lot to do with market insiders.”

Among the reasons cited for the collapse of financial markets was the reduction of bets that took advantage of the near-zero cost of funds in the Japanese yen to invest in other assets. The so-called auto business was hit by the Bank of Japan’s interest rate hike last week and has pledged to consider other measures. Investors also pointed to the lack of badges at major US tech companies.

“I think the same thing is happening here” as in 1987 in terms of internal market dynamics, said Yardeni, president of Yardeni Research. “Most of this sales is related to this relaxation style.”

In a case of history, former Fed chairman Alan Greenspan lowered interest rates and injected money into the financial system. Yardeni said he expected monetary policymakers to respond to the current situation, though he did not predict that the emergency situation would change.

Credit Risk

“This is becoming a global financial shock, and I think we can expect central banks to respond to it,” he said, before US stocks pared losses in the middle of the session. Monday Wall Street.

The S&P 500 index was down 2.3% by midday in New York, after sliding as much as 4.3% earlier in the day. Japan’s Topix Index fell more than 12%. Assets also rose before he made a decision.

The first reaction of policymakers may be to “reduce concerns about the US economy” and push back against the possibility of the Fed starting its easing cycle with a 50 basis point rate cut, Yardeni said. said. “But you know, a few more days like Friday and this morning’s futures, and I think the central bank will be giving money – and that could mean a 50 basis point cut.”

The risk is that the market downturn feeds on itself and is exacerbated by credit, Yardeni said. He said: “It is understandable that this process of reducing trade becomes another kind of financial crisis, leading to a recession,” he said, while emphasizing that that is not his expectation.

“The labor market is still in good shape,” he said, even after Friday’s weaker-than-expected jobs report in the US. July data showed a sharp decline in wage growth and an unexpected rise in the unemployment rate, raising concerns that the Fed may be late in cutting rates from at their highest levels in more than two decades.

“The American economy is growing, I think the service economy is doing well,” he said. “Overall, I think this will turn out to be more of a technical disruption in the market than something that turns into a recession.”

Yardeni is famous for coining the term “bond vigilantes” in the 1980s, referring to investors’ ability to shape policymakers’ debates by raising interest rates out of concern about financial conditions.

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