Wall Street, the legendary place of finance, has had some disturbing events. Black Monday 36 years ago had a huge shock to global financial markets, and now there is speculation about whether similar events will happen again. On social media, some seemed to be looking forward to reliving the scene, and the spread of the relevant market chart went viral quickly. Some have compared recent trading behavior in U.S. stocks to 1987, noting that the 2023 Nasdaq follows a similar pattern to the Dow in 1987, which is also reflected in U.S. Treasury yields. However, we must clearly recognize that today's market is very different from 1987. First, the stock exchange has strengthened the circuit breaker mechanism to prevent major stock indices from experiencing excessively large crashes in a single trading day. The purpose of this move is to maintain market stability and avoid the spread of panic. Second, while the S&P 500 has still seen positive returns this year amid rising U.S. Treasury yields, this gain has been concentrated in a small number of stocks, most of which have underperformed or continued to decline after posting losses in 2022. The situation is very different from the market in 1987.
For those skeptics, they may have heard the echo of 1987 and ignored important differences. Ned Davis Research strategists Ed Clissold and Thanh Nguyen noted in a recent report: "In 1987, the market was in a much more overbought state, with much more pronounced pre-crash declines, higher interest rates, accelerated economic growth and inflation, and stronger cyclical sectors." "These factors stand in stark contrast to the current market situation. However, that hasn't stopped some doomsday prophets on social media who are desperate to herald a crash on Thursday, the 36th anniversary of Black Monday. Back at that date 36 years ago, on October 19, 1987, the Dow Jones Industrial Average plunged 508 points, or nearly 23 percent, as a day-long selling frenzy swept the world and tested the limits of the financial system. The S&P 500 fell more than 20% on the day. At current levels, an equal percentage decline would mean a one-day drop of more than 7,700 points. However, we must be aware that the existence of a circuit breaker mechanism makes it almost impossible for a similar magnitude to happen again.
On Wall Street, market volatility is the norm, but we can't rely solely on historical data and charts to predict future movements. Financial markets are influenced by many factors, including economic data, political situation, international relations, and more. We need a fuller and deeper understanding of how markets work and how various factors interact. Finally, I would like to ask the question, even if we have a deep understanding of the market, can we really predict the future trend? Perhaps, we should focus more on long-term investment strategies rather than being swayed by short-term market fluctuations. Only on the basis of continuous learning and accumulation of knowledge can we better meet the challenges of the future. In this uncertain world, we need to remain calm and rational, and not be swayed by excessive panic. The history of Wall Street tells us that the ups and downs of the market are inevitable, but we can avoid risks with the right investment strategy and good risk management to achieve long-term solid investment returns. Let's be vigilant, but also optimistic, believing that the opportunities ahead far outweigh the risks. Recently, the rise in US Treasury yields has attracted widespread attention in the market.
People are starting to re-examine the relationship between bonds and stocks, and have come up with various predictions about where the market will go in the future. Among them, some believe that the stock market may suffer a 1987-style sell-off, while the bond market will see a safe-haven rally. Is this really going to happen? There is no consensus in the market on this issue. Some argue that a stock market crash is necessary to stop a bond sell-off. They believe that if there is a massive sell-off in the stock market, then the bond market will have a safe-haven rally, and bond yields will fall sharply, opening the door for the stock market to move higher again. To support this view, some experts cite the 1987 case. At the time, the S&P 500 plunged 28.5% in four days, and 20.5% on October 19, 1987 alone. However, this situation did not lead to a collapse in the bond market. Conversely, the 10-year Treasury yield fell sharply and the bond market staged a classic safe-haven rally. However, there are also those who question this view. They argue that while there are some similarities, they are not enough to conclude that a similar crash is likely. In fact, the market situation in 1987 was very different from what it is now.
At the time, the fundamentals of the market were not particularly bad, and now, the global economy is in a state of uncertainty, which could have a greater impact on the market. No matter where the market ends up, we need to be vigilant and keep an eye on what's going on. The relationship between stocks and bonds is not static, and investors need to adjust their portfolios in a timely manner according to market conditions. At the same time, we also need to recognize that market volatility is inevitable, and investors need to have enough patience and confidence to achieve long-term returns in the market.