Market Extra: It’s the 35th anniversary of the 1987 stock-market crash: What investors need to know

by | Oct 19, 2022 | Stock Market

Investors suffering motion sickness from the stock market’s wild October swings probably don’t want to hear about it, but Wednesday marks the 35th anniversary of the single ugliest day in stock-market history. On Oct. 19, 1987, the Dow Jones Industrial Average
DJIA,
+1.12%
plunged 508 points, a decline of almost 23%, in a daylong selling frenzy that ricocheted around the world and tested the limits of the financial system. The S&P 500
SPX,
+1.14%
dropped more than 20%. At current levels, an equivalent percentage drop would translate into a one-day loss of over 7,000 points for the Dow.

Read: Wall Street pros recall ‘sheer panic’ of October 1987 stock-market crash Could it happen again? There are some important differences between the 1987 and 2022 market environment. Marketwide circuit breakers put in place following the crash force 15-minute trading halts after declines of 7% and 13% and then close the market for the day after a drop of 20%. “Is it possible to be down 20% in a day? Sure, but not before we have to check our wits a couple of times first,” Liz Young, head of investment strategy at SoFi, told MarketWatch in a phone interview. Those circuit breakers were last triggered in March 2020, when stocks plunged sharply at the onset of the COVID-19 pandemic. See: Here’s one key factor that amplified the 1987 stock-market crash “The other big difference is that we’ve already gone down 20% this year,” Young said. While there may be more downside, it’s difficult to see what could trigger a comparable one-day downdraft. Black Monday didn’t come out of the blue. The S&P 500 fell 3% on Oct. 14, 2.3% on Oct. 15, and 5.2% on Oct. 16, the Wednesday-Friday stretch before the fateful day, recalled Nicholas Colas, co-founder of DataTrek Research, in a note earlier this week. But the S&P 500 had gained 32.9% from January through September 1987, while it’s been downhill for stocks this year since the large-cap benchmark scored a record finish on Jan. 3. It’s also a reminder that stock-market drops don’t have to happen all at once. 2008 was a “longer slog lower with bouts of deep selling,” noted Ross Mayfield, investment strategy analyst at Baird, in a phone interview. And while risk versus return dynamics are starting to look more attractive for long-term investors, the market can still go lower from here, he said. The Dow and S&P 500 ended Friday at the …

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