As a conceptual exercise, it may be useful to frame the current episode of market volatility (both upside and downside volatility) from the perspective of the stock market declines in 1998 and 2000. This is because the market decline in 1998 (fueled by the disrupting failure of Long-term Capital Management and the sharp devaluation of the Russian ruble) was quickly arrested and stocks went on to increase by another 58% before they eventually peaked and the real bear market started.

So, if the current environment looks more like 1998 than 2000 then this market cycle could still have another few years left and new all-time highs could be right around the corner. If, on the other hand, 2000 is a better analogy, then we could have bigger things to worry about.

Let’s start with interest rates. Prior to the market decline in 1998 the Fed Funds rate had been basically flat for more than two years. This is in stark contrast to the market peak in 2000 when the Fed had raised rates by 41% over 17 months. More recently, the Fed has raised rates by 1792% over 37 months, not to mention the balance sheet runoff policy. So from the view of monetary policy, 2000 is clearly the better analogy.