30 years since Black Monday

Good Morning,

Yesterday marked the 30th Anniversary of Black Monday. On October 19, 1987, the market (Dow Jones Industrial Average) crashed 22.6% in one day. MarketWatch published an article about what happened that day and how dissimilar it is to our current situation. A couple points that I found interesting in the article were:

1. The Fed Funds Rate (starting point for interest rates) was at 7.25% versus 1.125% (at the end of 2017)
2. Inflation (which has been non-existent for us currently) was 3.9% vs. 1.7%
3. The gain since the last Bull Market is similar to today, but the time length from the end of the last Bull Market was 60 months in 87' versus 103 months at the end of 2017
4. From 8/25/1987 to 10/16/1987, the market (DJIA) was down 16%, but for the market was up last quarter and this month the market (S&P500) is down around 5%

This article was great with providing a comparison but did not highlight how at this time program trading, portfolio insurance, and indexing were all new ideas being implemented in the market. The first two ideas caused more people to sell based on prices steadily decreasing (selling to keep a portfolio balanced or a price being triggered). Indexes and mutual were forced sellers as people demanded redemptions (forcing prices to drop further). During this time there was also a lot of political uncertainty around the US and Iran conflict because Iran had fired missiles at the US a couple days prior. This would have created more volatility which fed into the fears, making some uneasy. While at this time I wasn't in the market several tips that come to mind as I was reading through the environment at that time are:

1. Don't believe the hype. The Market in 87' was up 44% before October which was a significant gain
2. Diversification has limits when everything is falling
3. Anticipation beats reactions (can't time the stock market)
4. Significant crowding within the stock market does not work if everyone agrees

The market has taken a beating over the past two weeks, and while it might not be time to run for the hills it might be a great time to reassess what is going on and what are possible pain points not accounted for.

Market Watch-Black Monday 30th Anniversary

#financialliteracy #blackmonday #equities #stocks #bonds #economics #indexing #portfolioinsurance #programtrading #US #Iran #marketwatch #financialfloyd #phillyfinance

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