87 Crash

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October 18, 2017 at 11:11 pm #101720

RobGiles
Member

Read this yesterday….thought it might be of interest…

What about comparisons to 1987?

October 19 marks the 30th anniversary of the 1987 share market crash and as always comparisons are being wheeled out. While the bulk of the crash was concentrated in October 1987 (US shares fell 20% on October 19 and Australian shares fell 25% on October 20), US shares fell 34% over three months and Australian shares lost 50% over two months. The causes remain subject to debate – but the key appears to have been a 3% rise in US inflation, a 2% rise in US bond yields and Fed tightening hitting markets after a period of very strong gains. The following tables provide a brief comparison to today.

October 18, 2017 at 11:52 pm #107865

LEONARDZIR
Participant

Rob,
I remember it a little differently. For the first time large institutions were moving from the bond market to the stock market in a massive way. .They all had portfolio insurance which were hedges to lessen risk. Apparently the computers spit out sell orders in unison as the market declined and the program traders reacted to the computer selling. Clearly there other macroeconomic reasons as you mention above.
I remember that day as I watched a large part of my portfolio go up in flames..
Len

October 19, 2017 at 12:11 am #107866

LeeDanello
Participant

Len Zir wrote:

Rob,
I remember it a little differently. For the first time large institutions were moving from the bond market to the stock market in a massive way. .They all had portfolio insurance which were hedges to lessen risk. Apparently the computers spit out sell orders in unison as the market declined and the program traders reacted to the computer selling. Clearly there other macroeconomic reasons as you mention above.
I remember that day as I watched a large part of my portfolio go up in flames..
Len

And how long did it take to recover?

October 19, 2017 at 1:29 am #107867

Nick Radge
Keymaster

Yes, the ‘actual’ reason for the crash was portfolio insurance selling which was all the craze back then.

Whilst it can never be said that another crash ‘can’t’ occur, I think the 2010 Flash Crash is a good testament as to how the markets now react to significant inbalances.

October 19, 2017 at 12:56 pm #107868

RobGiles
Member

I wonder if option traders, despite the low vol, have been selling out of the money puts and reaping the premium as this trend grinds higher? If so, there will be a lot of selling needed to cover positions if we ever do get a deep correction. In saying that though, take a look at this graph….whilst there are a bunch of market commentators expecting an immanent pullback, the fact is new highs can continue to be made for a long period of time.

October 21, 2017 at 11:06 pm #107871

LeeDanello
Participant

A stock market panic like 1987 could happen again
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