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According to some pundits, the market’s dangerously close to a repeat performance
of October, 1987. Today, I’m going to show you why they’re wrong.
So writes Greg Guenthner (dailyreckoning.com) in edited excerpts from his original article* entitled It’s Not 1987 Anymore…
[The following article is presented by Lorimer Wilson, editor of www.FinancialArticleSummariesToday.com and www.munKNEE.com and the FREE Market Intelligence Report newsletter (sample here – register here) and may have been edited ([ ]), abridged (…) and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. This paragraph must be included in any article re-posting to avoid copyright infringement.]
Guenthner goes on to say in further edited (and perhaps in some instances paraphrased) excerpts:
The 1987 doomers are back. August is a slow month so every financial journalist on the planet has found time to tack on a Black Monday (October 19, 1987 when the Dow Jones Industrial Average endured its largest one-day collapse in history) question to the end of their interviews.
The Latest Fear-mongering Warnings
The latest round of Black Monday warnings…[come from] Dr. Doom himself, Marc Faber, who said last week on CNBC that investors should prepare for a 20% drop in the broad market before the end of the year:
“In 1987 we had a very powerful rally but also earnings were no longer rising substantially and the market became very overbought. The final rally into Aug. 25 occurred with a diminishing number of stocks hitting 52-week highs. In other words, the new-high list was contracting, and we have several breaks in different stocks.”
Faber’s warnings are pitch-perfect…. it’s August…stocks are looking a bit weak and investors are nervous. Comparing today’s market conditions in broad terms (overbought, breakdowns in “certain stocks”) with the 1987 crash can easily gain traction in this environment but if you move past the sweeping comparisons, you’ll see there’s not too much to the story [as the chart illustrates below].
There’s NO Comparison Between 1987 and 2013
The problem with the “pick a year to compare” game is that individual years don’t exist in a vacuum. You have to place them in context.
- The Dow was up almost 23% in 1986, setting up a 20-month run that saw the big index rise 76% by August 1987. That makes the 26% gains the Dow has posted from January 2012 – present appear positively mundane.
- The only similarity that 1987 has with 2013 is that both markets were up Jan. 1 – August. In 1987, the Dow rose as much as 44% by late August. As of today, the Dow’s up less than 18% year-to-date. That’s solid—but hardly the parabolic run-up that preceded the Black Monday crash.
Don’t get all wrapped up in these fear-mongering comparisons. It’s mostly a pointless exercise that won’t increase your returns by a single penny this year.
Conclusion
The consolidation we’re seeing (and could continue to see) in the markets is healthy. You should approach any upcoming correction as a potential opportunity—not a harbinger of disaster.
[Editor’s Note: The author’s views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.]
* http://dailyreckoning.com/its-not-1987-anymore/ (© 2013 Agora Financial, LLC. All Rights Reserved.)
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