36th Anniversary of 'Black Monday': Is Wall Street's Warning of a Recurrence Warranted?

As the anniversary of 1987 "Black Monday" approaches on October 19, Wall Street remembers one of the most catastrophic events that shook the global financial system. The Dow Jones Industrial Average plunged by almost 23%（508 points）, and the S&P 500 also plummeted more than 20% in a daylong selling frenzy that spread worldwide. It severely tested the limits of the financial system on that day.

As the ominous date nears, some on Wall Street reflect upon it by sharing charts resembling those from Black Monday. They are also speculating that the terrifying events of that fateful day could potentially recur, causing further chaos in the financial markets.

On social media, some individuals appear to be enthusiastic about recreating the events of Black Monday, as indicated by a proliferation of viral market charts that compare the recent trading activity of the stock market to that of 1987. The Market Ear shared an example that follows a template popularized by Bloomberg's John Authers through his column.

The author highlighted a similarity between the Nasdaq in 2023 and the Dow in 1987, which can also be observed in Treasury yields.

In terms of similarities, we can also shift our attention to equities. Specifically, we can compare how the Nasdaq-100 has performed thus far this year with how the Dow Industrials fared from the start of 1987.

Just like Ed Clissold, chief U.S. strategist at Ned Davis Research, in a report, "Additional similarities include rising interest rates, underperformance by rate-sensitive sectors and a strong dollar,". "The similarities are glaring."

Despite the significant similarities between the current market conditions and those leading up to Black Monday, strategists such as Ryan Detrick, chief market strategist at Carson Group, and Ed Clissold, a strategist at Ned Davis Research, do not anticipate a repeat of history this year.

Clissold has pointed out that the S&P 500 was more "overbought" in 1987 than now. Additionally, interest rates were higher in 1987, economic growth and inflation were running hotter, and more sectors of the S&P 500 linked closely to the economy were outperforming compared to the current market conditions.

Additionally, it is worth noting that several market structures that exacerbated the selling during Black Monday in 1987 are not a concern now. One such structure is portfolio insurance, which is used to mitigate losses. Additionally, "circuit breakers" have been implemented to prevent a 20% drop in the S&P 500, like the one on October 19, 1987. Such measures make it impossible for a similar catastrophic event to occur today. A 20% drop in the current S&P 500 level would result in a one-day loss of over 7,700 points.

These factors suggest that the current market may not experience a catastrophic event like in 1987.