Looking back – market cycles then and now
In this week’s video insight, I thought I would break down an insightful article by Michael Howell of CrossBorder Capital titled ‘Accord’: The Most Dangerous Word in Forex Markets. Howell highlights that we’re 33 months into a global liquidity upswing, but signs like rising bond yields and narrowing equity gains suggest we’re entering a late-stage cycle. He draws parallels to the 1986/87 period, where the Plaza Accord led to a significant market crash, suggesting that early 2026 could be a pivotal moment. Despite central banks continuing to add liquidity, Howell warns that the trajectory is slowing, and investors should prepare for potential turbulence ahead. What are your thoughts?
Watch my latest video insight to get the full breakdown.
Transcript:
Hi everyone, and welcome back to this week’s video insight. Today, we’re diving into the world of global finance, breaking down an insightful article by Michael Howell from Cross Border Capital entitled “‘Accord’: The Most Dangerous Word in Forex Markets”. It’s a look at the global liquidity cycle, its parallels to the 1980s, and what it might mean for investors in 2026.
Michael Howell’s article kicks off by noting the world is 33 months into a global liquidity upswing. Think of liquidity as the fuel that keeps markets humming – central banks like the Federal Reserve, China, and Japan are pumping money into the system to keep economies afloat. But here’s the catch: according to Howell, the cycle is starting to look late-stage. Rising bond yields, steepening yield curves, tightening credit spreads, and firming commodities all point to a maturing cycle. Inflation’s stirring, and Howell notes equity performance is shifting toward late-cycle sectors like energy and materials.
Howell draws an interesting parallel to 1986/87, which ended with the infamous October ’87 stock market crash. Back then, the Plaza Accord – a deal between major economies – sent the U.S. dollar tumbling, much like today’s weakening dollar post the so-called ‘Mar-a-Lago Accord.’ While History doesn’t repeat, it can rhyme, and Howell’s timeline suggests early 2026 could be a critical moment in time.
The question we all want answered is: are we on track for smooth sailing, or is trouble brewing?
This is where things might be described as a little spicy. Howell warns that the U.S. is walking a tightrope between recession and inflation. With huge fiscal demands, new tariffs acting like a tax shock, and a lack of monetary stimulus, the U.S. economy could slow down over the next 6-12 months. One of Howell’s indicators, which looks at the bond market’s term structure, is described as flashing a warning sign of slumping business activity.
We recently wrote about China’s deflationary trap here at the blog and Howell also notes China’s bond yields are dropping, potentially feeding global slowdown fears. Simultaneously, Europe and Japan are grappling with soaring yields due to massive funding needs. It’s a mixed bag, which Howell thinks should be pushing investors toward a more cautious, ‘risk-off’ mindset. But investors aren’t listening. Well not yet. The S&P 500 and global indexes are still hitting new highs, but Howell says the gains are narrowing, relying heavily on fresh liquidity inflows.
At the moment there’s probably not much to fear. Even Howell points out that global central banks are still adding liquidity, spurred by weak economies and a softer U.S. dollar. China’s opening its monetary floodgates to counter U.S. tariffs, and Japan’s backing off from tightening. In the U.S., there’s talk of the Trump administration pushing for lower rates and even a new, more compliant Fed Chair. It’s worth remembering in ’87, rising yields and a falling dollar similarly boxed in the Federal Reserve, and when the liquidity party stopped, the market crashed.
Howell’s global liquidity chart shows we’re still in an upswing, but the trajectory’s slowing. His sine wave overlay suggests we’re nearing a peak, with a more challenging 6-12 months ahead. Investors need to stay nimble – equities shine in the upswing, but as we approach the peak, bonds and defensive assets might start looking more attractive. I’ll just counter that by pointing out that central banks have a handy knack of devising new ways to keep the punch flowing.
So, what can investors – those who believe liquidity is the measure to watch – do? According to Howell, right now, we’re in the late upswing, where equities, especially late-cycle sectors, still have some runway to shine. And perhaps, in the absence of further stimulus by central banks, we will summit the liquidity peak. After that you might want to start eyeing uncorrelated or deeply undervalued equities and asset classes.
That’s all we have time for this week. I look forward to chatting with you again next week. And in the meantime please follow us on Facebook and X.
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
He is also author of best-selling investment guide-book for the stock market, Value.able – how to value the best stocks and buy them for less than they are worth.
Roger appears regularly on television and radio, and in the press, including ABC radio and TV, The Australian and Ausbiz. View upcoming media appearances.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
