Investors may not be out of the woods just yet, despite the recovery of stock prices from their recent lows on February 8. In fact, some analysts and investment managers are seeing disturbing parallels with the 2007-08 financial crisis, Yahoo Finance reports. That's worrisome, since the 澳洲幸运5官方开奖结果体彩网:bear market of 2007–09 lasted 517 calendar days and knocked 56.8% off the value of the 澳洲幸运5官方开奖结果体彩网:S&P 500 Index (SPX),  At the close on February 12, after gains on two consecutiv⛦e trading days, t✨he S&P 500 was 7.5% below its record high on January 26.

The 澳洲幸运5官方开奖结果体彩网:Investopedia Anxiety Index (IAI) continues to register extremely high concerns about the securities markets among our 27 million readers globally, outweighing low levels of worry about other economic and financial matters. A new risk for 2018, and thus a new source of anxiety, has come from so-called "short-vol" trading strategies that fell apart in recent weeks. (For more, see also: 6 Forces That May Push the Stock Market Even Lower.)

The 2007–08 Crisis

"Part of what brought down the stock market [last week] was very symptomatic and very similar to what happened in the financial crisis. Secured [澳洲幸运5官方开奖结果体彩网:securitized] products, leverage and complexity combining to form a selloff. When you look at 2008 a lot of it was there," says Aaron Kohli, interest🌠 rates strategist at BMO Capital Markets, in remarks to Yahoo Finance.

In 2007, there was a 澳洲幸运5官方开奖结果体彩网:subprime mortgage meltdown, as a 澳洲幸运5官方开奖结果体彩网:housing price bubble began deflating. Banks were hit by increasing defaults and 澳洲幸运5官方开奖结果体彩网:delinquencies on home mortgages, especially those that began to exceed the declining values of the underlying properties. Complex debt instruments carved out of home loans began to crater in value, such as 澳洲幸运5官方开奖结果体彩网:mortgage-backed securities (MBS) and 澳洲幸运5官方开奖结果体彩网:collaterized🌠 debt obligations (CDOs).

This imposed huge losses on the holders, both individual investors and major financial institutions. Then the dominoes started falling, as big financial institutions faced 澳洲幸运5官方开奖结果体彩网:insolvency and could not meet obligations to each other. For the first time, the concept of 澳洲幸运5官方开奖结果体彩网:counterparty risk entered mainstream discourse, and a massive government bailout of leading financial institutions under the 澳洲幸运5官方开奖结果体彩网:TARP program eventually was nece𝕴ssary to prevent systemic financial and econo🥂mic collapse.

The 澳洲幸运5官方开奖结果体彩网:Federal Reserve and other 澳洲幸运5官方开奖结果体彩网:central banks around the world then pursued a policy of aggressive 澳洲幸运5官方开奖结果体彩网:quantitative easing, pushing interests down to zero (or even into negative territory), to prop up the prices of financial assets, and to stimulate the economy. As in 2018, 2007 began with a strong economy and upbeat U.S. economic outlook. However, by the end of 2007, partially due to the subprime crisis, the economy was in what has come to be called 澳洲幸运5官方开奖结果体彩网:The Great Recession, which lasted into 2009.

Dangers in 2018

In 2018, the unraveling of risky "short-vol" trading strategies tied to the 澳洲幸运5官方开奖结果体彩网:CBOE Volatility Index (VIX) accelerated the recent stock market selloff. After more than a year of historically low 澳洲幸运5官方开奖结果体彩网:volatility, a growing number of 澳洲幸运5官方开奖结果体彩网:speculators began making what they had come to believe were can't-miss bets using futures and options. When volatility as measured by the VIX shot up unexpectedly, these highly-澳洲幸运5官方开奖结果体彩网:leveraged schemes produced huge losses, an🌠d traders scrambled to raise the capital necessary to cover these losses,🥃 adding to the selling pressure on stocks.

Today ordinary retail investors can choose from more than a dozen ETFs linked to the VIX, Yahoo Finance reports. Many of these products are highly leveraged, meaning that their value can swing wildly, Yahoo adds. Just as with various complex debt instruments and 澳洲幸运5官方开奖结果体彩网:derivatives in 2007–08, individual investors have piled into th🌟ese new products with little, if any, understanding of 🌠the full risks. Yahoo might have added that even investment professionals seriously underestimated the risks of complex new products in 2007–08, adding to that crisis.

A particularly notorious example today is the VelocityShares Daily Inverse VIX Short-Term ETN (XIV) from Credit Suisse AG. It lost 92.6% of its value on February 6 alone, and Credit Suisse plans to liquidate it on February 21, at close to a total loss for most investors, Yahoo says. Also, as in 2007 with MBS and CDOs, the leading 澳洲幸运5官方开奖结果体彩网:rating agencies have not been issuing warnings abo🤪ut the dangers of these volatility-linked products, Yahoo adds.

What's Ahead

Since 1980, the 澳洲幸运5官方开奖结果体彩网:MSCI All-Country World Index has recorded at least a 10% decline two out of every three years on average, per research b🅠y Charles Schwab & Co. Inc.. The maximum dip so far this year has been 8.4%, dividends included, from the high on January 26 to the low on February 8, suggesting a further decline this year, per both sources. Meanwhile, the S&P 500 fell by 10.2% over that same period.

Despite all this, the optimists point to worldwide economic growth and corporate profit growth that remain solid. However, even long-term bulls such as Michael Wilson, chief U.S. equity strategist and chief investment officer at Morgan Stanley, acknowledge that today's high equity valuations will be hard to maintain in the face of rising interest rates and inflation, the Journal adds, raising the odds of further pullbacks in stock prices. (For more, see also: Why Stocks Won't Crash Like 1987: Goldman Sachs.)