Next Wall Street Crash Looms? Lessons On Anniversary Of 1987 Crash
By GoldCore
GoldSeek.com
Monday, 23 October 2017
– Next Wall Street Crash looms? Lessons on anniversary of crash
– 30 years since stock market ‘Black Monday’ crash of 1987
– Dow Jones Industrial Average fell 22.6% on October 19, 1987
– S&P 500, FTSE and DAX fell 20%, 11% & 9% respectively
– Gold rose 24.5% in 1987 (see chart), acting as safe haven
– Prior to crash, stocks hit successive record highs despite imbalances
– Imbalances that lead to 1987 crash are much worse today
Last week markets wobbled somewhat on the 30th anniversary of Black Monday with a 2017 version of an iffy day’s trading. The S&P 500 posted it’s biggest post-midnight drop on Friday, but went onto finish the day with yet another record close.
Prudent traders and investors are growing increasingly uncomfortable with the increasing “irrational exuberance” in markets. We are repeatedly seeing new record highs in U.S. stocks and yet trading volume and volatility remain suspiciously low.
Many are asking how long this situation can go on for? Especially given the significant macroeconomic risk in the form of a massively indebted U.S. and western world and heightened geo-political risk.
The Black Monday of 1987 is firmly etched in markets’ histories. Few came away unscathed. It is generally remembered as something akin to a bloodbath that few wish to repeat.
But a repeat of that crash looks more and more likely by the day. None of the factors that pushed the markets to react in such a way are particular to 1987. They all exist today, arguably on a grander and more dangerous scale.
Is bigger better? How times change
There have been many articles and commentary pieces asking if Black Monday could happen again.
It’s worth giving a quick snapshot of how different our marketplace looks today, to how it did then.
Prior to the 1987 crash, the record number of shares to have traded hands in one day was 302 million. On October 19th 1987 it was 595 million. Today it is not uncommon for 1-1.5 billion shares to be traded on an average day.
The drop in the DJIA was a then record 508 points, today this would be equivalent to around a 2% drop.
On the day of the crash IBM was America’s largest company. The 1987 IBM is just 6% of the size of Apple.
The above tells us one thing – the market is bigger today. There is a greater volume, greater choice and greater opportunity for traders and investors. there is also greater debt and leverage and the new phenomenon of ‘stock buy backs’.
So is bigger necessarily better, stronger or more resilient?
As a direct result of Black Monday regulators came together to put safeguards in place to prevent anything like it happening again. However, if you look at the main reasons put forward as to why Black Monday is burned in market history’s memory then you will notice that there is little regulators can try to prevent.
The Rest…HERE
