'This reminds me an awful lot of 1987,' bonds critical to what happens next, says market analyst

  • While David Joy is certainly not predicting a market crash, he says 1987 and the present share a similar economic backdrop.
  • He predicts the stock market will stabilize but says bond yields remain the "critical factor as to what happens next."

The recent stock market gyrations and rising bond yields are reminiscent of another stressful time for investors, strategist David Joy told CNBC on Friday.

"This reminds me an awful lot of 1987," the chief market strategist for Ameriprise Financial said in an interview with "Closing Bell."

While he's certainly not predicting a market crash, Joy said 1987 and the present share a similar economic backdrop.

In 1987, inflation started to rise under a new Federal Reserve chair, who started raising rates in early spring, he said. That caused bond yields to rise, which led to a market correction. While the market stabilized, bond yields rose much higher in the summer, he said. On Oct. 19, 1987, the stock market crashed, with the Dow Jones industrial average falling 23 percent.

A trader on the New York Stock Exchange holds his head in October 1987 as stocks were devastated during one of the most frantic days in the exchange's history.
Maria R. Bastone | AFP | Getty Images
A trader on the New York Stock Exchange holds his head in October 1987 as stocks were devastated during one of the most frantic days in the exchange's history.

The Fed already started to slowly raise interest rates in December 2016. It is expected to follow that course under its new chair, Jerome Powell, who took the helm on Monday.

This week, rising bond yields helped set off a sell-off in the stock market. On Monday, the 10-year Treasury yields flirted with 2.885 percent, a 4-year high. Yields backed off those highs as the week progressed and were at 2.85 percent on Friday.

While the Dow Jones industrial average closed more than 300 points higher on Friday, it still had its worst week in two years. The Dow and the S&P 500 both lost 5.2 percent on the week, while the Nasdaq shed 5.1 percent as rising interest rates spooked investors.

"This pullback that we're seeing is going to exhaust itself fairly soon, and then we'll see a period of stability," Joy predicted. "But I do believe bond yields remain the critical factor as to what happens next."

Meanwhile, Katie Nixon, chief investment officer for Northern Trust's wealth management business, is confident the market correction is simply that — and not the beginning of a bear market.

That's because she believes the fundamentals are "resoundingly strong" in the U.S. as well as globally.

"What we would look for is a deterioration in fundamentals to suggest the onset of a recession to really be the end of this bull market cycle," she said in an interview with "Power Lunch."

"We just don't have that in our forecast," she added.

— CNBC's Tom Franck contributed to this report.

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