There might be volatility in US markets but we are not heading for an '87-style crash, ABN AMRO Morgans chief economist Michael Knox says.

Michael cites the model used by Roger Brinner, the American analyst who foresaw the Wall Street crash of 1987.

At the time Brinner was the chief economist of Data Resources, then the largest consultancy in the world.

Brinner employed an analytical model which compared reported company earnings and 10 year US bond yields.

Back in 1987 Brinner said the US stock market was overvalued and headed for a major correction, according to the model.

The reality turned out to be within two per cent of his prediction.

Brinner examined the relationship between company profits and bond yields, based on S&P500 companies.

He noted a fall in earnings in excess of bond yields, which are driven by inflationary trends, budget balance and what the US Federal Reserve does.

Using the same model now, we can see dramatic changes in both US company earnings and bond yields.

For the year to September, earnings have fallen by 8.5 per cent, the greatest drop since 2001.

This is a result of sub prime mortgage troubles.

Earnings have kept falling and will continue to fall for the next couple of quarters but unlike 1987, 10 year bond yields are falling even faster.

This is because inflation is at a low rate and interest rates have continued to be cut.

This indicates that there will be no crash. In fact, the US stock market, and by extension the Australian market, after a couple more weeks of sell off, will actually grow in value.