Doomsayers ignore key differences, skeptics say
As the anniversary of “Black Monday” approaches, some on Wall Street are observing it by swapping ominous-looking charts and speculating that one of the most terrifying days in markets history might recur.
To be sure, there are plenty of differences between markets today and in 1987. For one, stock exchanges have strengthened circuit-breaker mechanisms in order to prevent major indexes from crashing by double digits during a single session. On Oct. 19, 1987, the Dow Jones Industrial Average DJIA 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 dropped more than 20%. At current levels, an equivalent percentage drop would translate into a one-day loss of over 7,700 points. Circuit breakers make a drop of similar magnitude nearly impossible.
“The potential similarity with what occurred in October 1987 is that the historic stock market crash was preceded by a big sell-off in the 10-year Treasury over the summer months,” Woods said in the report.
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