The Parallels Between 1987 (October Stock Market Crash) And 2018
SilverDoctors.com
February 10, 2018
“History provides us with the gift of insight, and though history will not repeat itself, it may rhyme…”
by Michael Lebowitz via Real Investment Advice
The 1987 stock market crash, better known as Black Monday, is frequently deemed a historical anomaly. Unlike the crashes of 1929, 2000, 2008 and other smaller ones, many investors are under the false premise that the stock market in 1987 provided no warning of the impending crash. On Black Monday, October 19, 1987, the Dow Jones Industrial Average (DJIA) fell 22.6% in the greatest one-day loss ever recorded on Wall Street. Despite varying perceptions, there were clear fundamental and technical warnings preceding the crash that were detected by a few investors. For the rest, the market euphoria raging at the time blinded them to what in hindsight seemed obvious.
As of just last week, the market was in a state of euphoric complacency, donning a ‘what could go wrong’ brashness and extrapolating good times as far as the eye can see. While we respected the bullish price action, we also appreciated that investors were not properly assessing fundamental factors that overwhelmingly argue the market is grossly overvalued. Whether prices revert to more normal levels via a long period of market malaise or a single large drawdown as we are seeing, we do not know. Historically situations with the largest fundamental imbalances ended with powerful failures that quickly erased years of gains.
Frankly, it is easy to demonstrate the fundamental factors that could cause a meltdown, but it is difficult to predict when it might occur. In this series of articles, we explore the market peaks of 1929, 1987, 1999 and 2007 and the fundamental and technical conditions that prevailed during those periods. Since each episode has different attributes, we cannot provide a comprehensive checklist of the fundamental and technical conditions that must occur before the market peaks this time. However, history provides us with the gift of insight, and though history will not repeat itself, it may rhyme.
Fundamental Causes
Below is a summary of some of the fundamental dynamics that played a role in the market rally and the ultimate crash of 1987.
The Rest…HERE
