"Black Monday" Revisited? Institutions Warn: Current US Stock Market is "Similar to 1987", but October Crash is not Inevitable

According to the information obtained by Zhitong Finance, data from Ned Davis Research shows that the current US stock market has astonishing similarities to 1987, but this does not mean that a crash in October will occur. The third-quarter pullback and the weakening breadth of the market are just a few similarities between the S&P 500 index and 36 years ago.

Ned Davis Research stated, "So far this year, the market-cap-weighted average index has shown strong growth, but the breadth of potential market gains has been weak. Concerns about inflation have pushed up interest rates and sparked concerns about further rate hikes. Industries sensitive to interest rates have performed poorly. Recently, the US dollar has strengthened, which may hinder corporate profit recovery. In October, the S&P 500 index has fallen nearly 8% from its summer high. The above paragraph summarizes the situation so far in 2023. It also describes a situation similar to 1987."

Considering the "Black Monday" that occurred on October 19, 1987, these similarities may be seen as frightening by investors, as the Dow Jones Industrial Average plummeted 22.6% in a single day. However, Ned Davis Research predicts that there will not be a "waterfall-like" crash this time, because although today's stock market has many similarities to the 1987 market, there are also many differences.

The report states that first, after the stock market crash in October 1987, circuit breakers were put in place, making it "almost impossible" for the stock market to fall 20%. When the S&P 500 index falls 7%, 13%, and 20%, circuit breakers will be triggered and trading will be suspended. The differences between today and 1987 also extend to a wider range of economic areas. The institution stated, "Among all types of indicators, the biggest difference between 1987 and 2023 may be US macroeconomic data. Throughout 1987, the economy and inflation were accelerating. Although the economic data in 2023 has exceeded expectations, the pace of economic activity is much slower."

According to this report, other macroeconomic differences include yield curves, the US dollar, and employment growth trends. The report states that all of this is to say that history will not repeat itself, it will rhyme. Although the current situation has many similarities to 1987, it does not mean that a stock market crash like 1987 is imminent. The report concludes, "Although there are several high-level similarities, they are not enough to draw conclusions similar to a crash event."