Japanization: The S&P 500 Is Tracking The Nikkei Of 1980

The question of Japanization in the U.S. continues as the S&P 500 tracks the Nikkei of 1980. An email question I received recently is worth discussing in more detail.

While it is easy to assume “this time is different,” the “Fed won’t let markets collapse,” or “insert your rationalization here,” there is a lot of history arguing with you. However, amid a speculative driven mania, it is certainly understandable to get an email such as this:

“Recently, the Nikkei was down ~4% premarket, and the BOJ stepped in to buy 70bn Yen of ETFs to save the market. The Fed is doing more than that monthly. So, how can the market ever go down?”

That certainly seems to be the case at the moment. After all, look at this monthly chart of the S&P 500 below.

Japanization Nikkei, Japanization: The S&P 500 Is Tracking The Nikkei Of 1980

While the liquidity-fueled rise in the market from the financial crisis low was substantial, it wasn’t as abnormal as it seemed as it tracked along with the exponential growth trend line. Such was also the case from 1957 to 1995.