If history is our guide, then the S&P 500 looks set for a cataclysmic event after the upcoming September FOMC meeting, when the Fed will presumably announce a “taper” of its asset purchasing program known as quantitative easing.
It is 1987 again!
gm_fx posted the chart to the right on StockTwits.com. In 1987, the stock market spent most of the year rallying before a harrowing 22% collapse on October 19th, better known as “Black Monday.” With October fast approaching, it’s time to ask if 2013 is 1987.
Even a cursory Google search shows that “1987 all over again” has been a popular market axiom for a few years now.
Admittedly, if you said this in 2007-2008, you were kind of right. If you’ve said it since, you were pretty wrong (or maybe just early).
2012: On October 23, 2012, Bespoke Investment Group cautioned that it might be 1987 again.
In both years, the S&P 500 started off strong, saw a first half peak in the Spring, and then sold off. In both years, the market regained its footing around Memorial Day weekend, kicking off a Summer rally. In 1987, the S&P 500 peaked in late August and had two successive failed rallies where each subsequent sell off made a lower low. Likewise, this year the S&P 500 peaked in mid September and has since had two successive failed rallies where the index has made lower lows.
2011: Doug Kass and Jim Cramer emailed each other on August 9, 2011 about how 2011 was 1987:
In an early-morning email exchange with Jim Cramer, Jim reminded me that the price behaviour of the U.S. stock market over the past week most resembles the October 1987 crash, a period of incomprehensible and unpredictable price action that did not necessarily reflect the economic fundamentals.
2010: On May 17, 2010 it was also almost 1987. Here’s Fortune’s Shawn Tully:
Don’t be deceived by the rebounding economy, any more than the bulls should have been misled by the balmy climate during the late Reagan years. Right now, stocks are extremely vulnerable to the same scenario. The reason: The market is even more overpriced than when thunder struck on that distant Black Monday.
Could 1987 happen again? Sure, maybe. If we keep guessing every year, eventually it will be.