Title: Is History Repeating Itself? Wall Street Reflects on the Anniversary of “Black Monday”
Introduction:
With the anniversary of the infamous “Black Monday” approaching, Wall Street is abuzz with discussions and speculations about the possibility of a similar market event. Ominous charts are being shared, and some even seem eager to relive the terrifying day. However, experts are quick to point out that while there may be similarities, important differences between the markets then and now should not be ignored.
The Past and Present Market Comparison:
Prominent financial columnist John Authers recently highlighted that the Nasdaq’s pattern in 2023 resembled that of the Dow in 1987, and this similarity extended to Treasury yields. However, analysts at Ned Davis Research, Ed Clissold, and Thanh Nguyen, emphasized that significant distinctions exist between the current market and that of 1987. These include differences in overbought conditions, the intensity of the decline before the crash, interest rates, economic growth, inflation, and the strength of cyclical sectors.
Social Media Frenzy:
Despite these differences, social media platforms have become a breeding ground for doomsayers who predict a crash reminiscent of 1987. The upcoming anniversary has further fueled these fears, with users drawing parallels between the past and present market conditions.
The Reminders of “Black Monday”:
“Black Monday,” which occurred on October 19, 1987, saw the Dow Jones Industrial Average plunging 508 points, experiencing a decline of nearly 23%. The S&P 500 also dropped more than 20%. Today, such a percentage drop would translate into a one-day loss of over 7,700 points, but circuit breaker mechanisms in place make a drop of this magnitude nearly impossible.
Treasury Yields and Their Influence:
The anniversary has also prompted some on Wall Street to re-examine the relationship between Treasury yields and stock prices. Comparisons drawn between 1987 and 2023 highlight how stocks seemed resilient to higher yields until they eventually succumbed to a significant sell-off. Jefferies’ Global Head of Equity Strategy Christopher Wood emphasized the need to consider the impact of Treasury yield fluctuations on the stock market.
The Bond Market’s Role:
If a 1987-style sell-off were to occur in stocks, how would the bond market react? Some experts argue that a stock-market rout is necessary to stabilize bonds. Studies of the 1987 crash reveal that as the S&P 500 collapsed, the Treasury bond market experienced a flight-to-safety rally, leading to a decline in the 10-year Treasury bond yield.
Different Opinions:
While SocGen strategist Albert Edwards warns of a potential crash like in 1987, NDR’s Clissold and Nguyen caution against drawing definitive conclusions. They argue that despite certain similarities, there are not enough aligning factors to predict a crash-like event.
Conclusion:
As the anniversary of “Black Monday” looms, Wall Street finds itself in a state of reflection and speculation. While comparisons to the events of 1987 may be intriguing, it is crucial to remember the distinct differences that separate the markets then and now. Only time will reveal whether history is truly repeating itself or if these concerns will remain unfounded.