August 25, 1987 the Dow Jones Industrial Average (DJIA) closed at an all time high of 2,722. On Wednesday, October 14th, 1987 the DJIA commenced with a 4 daily sell off culminating on Monday, October 19th.
During the four day selloff, the DJIA dropped 30.7% (74% of this total decline occured on Monday, October 19th).
Additional tidbits from 1987 (Bureau of Labor Statistics)
Quarterly Average Unemployment rates during 19987
6.6% Quarter I
6.3% Quarter II
6.0% Quarter III
5.9% Quarter V
14.1 Average unemployment duration (in weeks) for 1987
13.2% Percentage collecting unemployment 27 weeks and over
Wikipedia:
According to a number of "experts", potential causes for the decline (a.k.a. sell off) included program trading, overvaluation, illiquidity, and market psychology.
The most popular explanation for the 1987 crash was selling by program traders. U.S. Congressman Edward J. Markey, who had been warning about the possibility of a crash, stated that "Program trading was the principal cause".
After the crash, many blamed program trading strategies for blindly selling stocks as markets fell, exacerbating the decline. Some economists theorized the speculative boom leading up to October was caused by program trading, while others argued that the crash was a return to normalcy. Either way, program trading ended up taking the majority of the blame in the public eye for the 1987 stock market crash.
New York University's Richard Sylla divides the causes into macroeconomic and internal reasons. Macroeconomic causes included international disputes about foreign exchange and interest rates, and fears about inflation.
The internal reasons included innovations with index futures and portfolio insurance. I've seen accounts that maybe roughly half the trading on that day was a small number of institutions with portfolio insurance. Big guys were dumping their stock. Also, the futures market in Chicago was even lower than the stock market, and people tried to arbitrage that. The proper strategy was to buy futures in Chicago and sell in the New York cash market. It made it hard -- the portfolio insurance people were also trying to sell their stock at the same time.
Hit songs of 1987 that Grandpa deems foretelling include: Faith (George Michael), Livin' On a Prayer (Bon Jovi), Land of Confusion (Genesis), Little Lies (Fleetwood Mac) and Should've Known Better (Richard Marx).
Grandpa's take on Year to Date 2010:
The S & P 500 closed at 750.74 on 3/12/2009 and 1,149.99 on 3/12/2010. The index moved up 399.25 points or 53% in a one year period.
9.7% Jan. and Feb. seasonally adjusted unemployment rate
14.9 mil number of unemployed in February 2010
8.8 mil number of people working PT for economic reasons
29.3 ave. unemployment duration (in weeks) Feb. 2010 (2 times 1987)
40% collecting unemployment 27 weeks and over (3 times 1987)
16.8% unemployed/marginally attached & working PT for economic reason
8.4 mil number of jobs lost since December 2007
Program Trading Headlines (2010):
* Program trading grew last week on NYSE Euronext's (NYX) New York Stock Exchange
as total volume grew.
* Wall Street's New Race Toward Danger
* CFTC To Study High-frequency Futures Trading
* BM&FBovespa sees 2010 high frequency trading surge
* CME May Steer More High-Frequency Traders Toward Risk Controls
* US senator urges high-frequency traders to step up
* SenatorKaufman Sees Rising Concern over High Frequency Trading
* U.S. SEC says dark pools are emerging risk to market
Hit songs of 2010 that Grandpa deems potentially foretelling include: Tik Tok (Ke$sha), How Low (Ludacris), Replay (Iyaz), I gotta Feeling (The Black Eyed Peas), If You Only Knew (Shinedown) and Do You Remember (Jay Sean).
Grandpa does not read tea leaves nor tell fortunes however, in the words of The Black Eyed Peas and Bon Jovi; I Gotta Feeling this market is Living on a Prayer.
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