While most people are focused on the carnage in the stock market, scarier signs are emerging from the credit market. Currently, the S&P 500
In December 2018, markets had a V-shaped rebound from the 2,400 level on the S&P 500. Over the next 14 months, stocks trended higher with low volatility. However, the issues causing weakness at that time were the Fed's hawkish stance and the brewing trade war between the U.S. and China. These issues were much more easily resolved than current problems.
Credit spreads are spiking to levels last seen during the financial crisis in 2008. Companies with weak balance sheets are seeing the biggest losses. Low yields will pressure banks and make them raise credit standards, making it harder for companies with weak balance sheets to get funding. This is even more pronounced in the energy sector due to crude oil falling more than 25% to levels where many projects are not viable.
In the earlier part of the selloff, weakness was concentrated in high-yield bonds
Yields are plummeting with the 10-year yield hitting 0.50%. In October 2018, they were north of 3%. This suggests that investors are anticipating a low-growth and low-inflation environment in the future. And they are more concerned about "return of capital" rather than "return on capital". Falling yields have also resulted in an inversion of the curve, where short-term and long-term rates have converged.
As mentioned, low yields will also put downward pressure on bank earnings. Just take a look at how Deutsche Bank
Ultimately, the issues facing the economy and markets are much different than December 2018. These problems were political and people-driven, and credit markets weren't too worried even with stocks 25% lower between October 2018 and December 2018. This time, stocks are 20% lower, and credit markets are very worried.