- Today's stock market looks a lot like it did in 1987, but that doesn't mean a crash will happen in October.
- Ned Davis Research highlighted key similarities and differences between now and 36 years ago.
- "While there are several high-level similarities, there are not enough commonalities to conclude that an accident-like event is likely."
The Similarities Between Today's Stock Market and the stock market of 1987 are surprising, but that doesn't mean a drop will occur in October, according to Ned Davis Research.
A correction in the third quarter and a weakening of the market breadth are just a few things in common between the S&P 500 today and 36 years ago.
"Cap-weighted averages have posted strong gains so far this year, but underlying market breadth has been weak. Inflationary fears have pushed up interest rates, raising concerns about further rate hikes. Cap-sensitive sectors rates have underperformed. More recently, the "The dollar has strengthened, which could hinder the recovery of earnings. Heading into October, the S&P 500 retreated nearly 8% from its summer high," said Ned Davis Research.
"The paragraph above summarizes the year 2023. It also describes the year 1987."
These similarities could be considered discouraging by investors, given that "Black Monday" occurred on October 19, 1987.when he Dow Jones Industrial Average It plummeted 22.6% in a single day.
But Ned Davis Research doesn't expect any "waterfall" decline this time, because despite the many similarities between today's stock market and the one in 1987, there are also many differences.
For one thing, circuit breakers were installed after the October 1987 accident, making a 20% drop "almost impossible," the memo said. Circuit breakers halt trading when the S&P 500 falls 7%, 13%, and 20%.
And while the stock market has been moving in the same direction today as it did in 1987, the magnitude of its peak gain this year has decreased by a magnitude of almost 20 percentage points.
Ned Davis Research
The differences between today and 1987 also extend to the broader economy.
"Of all types of indicators, perhaps the biggest differences between 1987 and 2023 are in macroeconomic data. The economy and inflation accelerated throughout 1987. While economic data exceeded expectations in 2023, the acceleration of activity has been much lower," NDR said.
Other macroeconomic differences include the yield curve, the US dollar and job growth trends, according to the note.
All this is to say that history doesn't repeat itself, it rhymes. And while there are many commonalities between today and 1987, that doesn't mean a stock market crash like the one in 1987 is imminent.
"While there are several high-level similarities, there are not enough commonalities to conclude that an accident-like event is likely to occur," NDR concluded.
