The Dow (DJIA) slipped by almost 23 percent on Black Monday, October 19, 1987. 30 years later, the DJIA has just set a new record high at 157.60 points above 23,000 points, up 5,000 points in just 18 months. Since what many on Wall Street nicknamed the “Trump rally” seems endless, some wonder whether there could be a Black Monday again.
In 1987, the market was in a clear bubble territory and analysts later put the blame of the crash on too sharp rate hikes which the Federal Reserve (Fed) justified by fast-growing oil prices. Growing computerization and public deficit at the time created conditions for a major incident on the markets. “Today is different” many traders and commentators keep saying although most crashes did follow a period when a majority thought the same.
Indeed, increased cyber-threat and widespread use of index investing and ETFs may both constitute a real threat to markets’ stability, the former for its ability to disrupt the whole thing, the latter for its ability to extend the bearish pressure in case of a Black Monday scenario. Also, a number of individuals and fund managers seem to buy because markets don’t stop growing which indicates there could be too much complacency if not euphoria.
Last but not least, the impact of Central Banks’ very accommodative policies in recent years might create the conditions for a next financial crisis whose shape, depth and effects will likely be unknown to us till it happens. That’s why Cyceon doesn’t take the present ups for granted and knows that there will be downs in the future.