Comparing the 1987 crash to current one

[Lsbcal]

I remember the October 1987 crash well. DW had come down with pneumonia and we had a 3 year old boy. It was nerve wracking.

I created this chart to show me how the current crash compares to then. The current crash was on us much more rapidly probably because the cause is very different.

This chart starts from the peak of the SP500 in August 1987. The red line is the current market as of 3/12/2020 and the time line just shows the 1987 period. The chart extends out to about 1 year from the peak.

I might update this over time and display if there is interest.

 

[REWahoo]

I might update this over time and display if there is interest.

Put me in the interested column.

 

[audreyh1]

Yes, I always love your charts Lsbcal.

 

[pb4uski]

Put me in the interested column.

+1

Thought a part of me thinks that this time will be different. If the powers that be can mitigate the spread of COVID-19 before it does more damage to the economy then it may be a quicker recovery. I'm also hoping that the spread COVID-19 will slow as the weather in the northern hemisphere warms up and that they find ways to address it over the summer.

I dunno... it just seems that the causal effects of this bear are different from any bear in my lifetime.

 

[easysurfer]

I remember the 1987 crash more as a spectator than participant. I was a youngster and was just getting my career underway so really didn't have any investments at that time. But some of the supervisors and other older folks (those days, the entire group shared the office space on the same floor) were in a panic. Also, back then, no internet so folks were listening to the news on the radio and/or calling their stock brokers. There I was thinking, "What's all this commotion? I can't focus of my job ."

 

[Lsbcal]

+1

Thought a part of me thinks that this time will be different. If the powers that be can mitigate the spread of COVID-19 before it does more damage to the economy then it may be a quicker recovery. I'm also hoping that the spread COVID-19 will slow as the weather in the northern hemisphere warms up and that they find ways to address it over the summer.

I dunno... it just seems that the causal effects of this bear are different from any bear in my lifetime.

Regarding the red, I hope so too. But I was listening to a podcast by a well regarded epidemiologist and he said that MERS came out of the Arabian Peninsula where temperatures were very high. He brought that up as an example of why this might not go away easily.

 

[Lsbcal]

I remember the 1987 crash more as a spectator than participant. I was a youngster and was just getting my career underway so really didn't have any investments at that time. But some of the supervisors and other older folks (those days, the entire group shared the office space on the same floor) were in a panic. Also, back then, no internet so folks were listening to the news on the radio and/or calling their stock brokers. There I was thinking, "What's all this commotion? I can't focus of my job ."

Yes, there was no social media then. You waited for the paper to get information. To invest in funds you would generally send in a check. I seem to recall that not all funds would allow telephone redemptions. I didn't have a broker and was investing in funds. Really no one to talk to and no threads like this to read.

 

[pb4uski]

Regarding the red, I hope so too. But I was listening to a podcast by a well regarded epidemiologist and he said that MERS came out of the Arabian Peninsula where temperatures were very high. He brought that up as an example of why this might not go away easily.

Yeah... I've seen well reasoned speculation both ways... I think the reality is that COVID-19 is so new that they just don't know at this point.

 

[MRG]

1987 - I was a thirty year old programmer with a couple years experience. Early in that morning a taggerard looking executive came by, asked where the rest of the department was, and told me to keep an eye on the Megacorp online systems. I knew what he wanted and made observations my only task.

Luckily this was pre-internet days and the only traffic was brokers and the fund companies. Today those onlines wouldn't survive with end customers hitting their accounts. It was tight, several systems died, but cycling cleared the virtual storage constraints. Today we can remember that Fidelity had similar problems and made some adjustments to their system in 2020.

In 1987 I owned a fund but really didn't watch it as I had no control over the investments. So mentally it wasn't an issue. In 2000 I was more aware of the loss but still had zero control. By 2008 Megacorp had gone public and was handing out stock. The stock crashed hard in 08 and all I could do is watch. So I'm going to watch and do nothing. Today I have all control and a 50/50 AA has allowed me to sleep.

 

[NameTaken2]

+1

I'm also hoping that the spread COVID-19 will slow as the weather in the northern hemisphere warms up

...if so, maybe Global Warming helps?
That would be interesting.

 

[Badger]

Put me in the interested column.

+1


Cheers!

 

[target2019]

This chart starts from the peak of the SP500 in August 1987. The red line is the current market as of 3/12/2020 and the time line just shows the 1987 period. The chart extends out to about 1 year from the peak.

Is the red line starting at this market's peak (which I think was in Feb.)?

 

[Andre1969]

In 1987, I was a senior in high school, and hadn't learned about investing yet. Everything I had was in savings, CDs, etc. My Mom was taking out savings bonds for me. I do remember it making the headlines, but it seemed like nobody in my circle of life was overly worried about it. My Mom and stepdad were working, and years from retirement. Mom was in the federal government, with a secure job, and my stepdad worked as a plumber...so you could say that when things went down the crapper it was a profitable time for him!

Anyway, it will definitely be interesting to see how these two periods will compare, as time goes by. It seems to me that they're starting off pretty differently though. With the 1987 crash, it looks like the market was sort of plodding along and going soft, and then there was that quick ~22% one day drop, tried to claw its way back up, but then bottomed out again, before slowly trending back up.

In contrast, the way the market is jumping around this time, it seems like there's a fundamentally strong economy, and the market wants to return back to those highs, but every time some new piece of bad news comes out, people get spooked again. That might also show how much social media and being constantly connected to the news...too much of a knee-jerk reaction.

 

[audreyh1]

Is the red line starting at this market's peak (which I think was in Feb.)?

I believe so. S&P500 peak was 2/19/20.

Oh yeah - he says so in the text in the graph.

 

[NW-Bound]

In 1987, I had to commute 100 miles RT to work, and the freeway was going through major reconstruction during that time. I was so pooped when I got home that I had no time to catch up on the news. Of course back then there was only the TV as there was no Internet. I did listen to the radio during the drive, and there was a story of an investor killing his FA. Another one jumped from a building.

I had some money invested in 401k then, but did not even have time to look at it. Never knew how much money I lost, nor how much money I had then. Could not be that much.

 

[utrecht]

Obviously nobody has any idea what will happen in the market the rest of 2020, but if we take the rest of 1987s chart path and continue on that path from where we are now until the end of 2020, I estimate that we end the year at about +3%. Id be happy with that.

 

[DrRoy]

Overall there are similarities in the market path. The cause was different: in 1987 there was a single day loss of -22%, and the general economy was not much effected by it. In the case now, there is a much clearer understanding of what caused it, the economy is greatly effected, and we can follow developments that will help.

 

[audreyh1]

Overall there are similarities in the market path. The cause was different: in 1987 there was a single day loss of -22%, and the general economy was not much effected by it. In the case now, there is a much clearer understanding of what caused it, the economy is greatly effected, and we can follow developments that will help.

I believe there were several days of drops in 1987, not just the one huge day.

 

[Lsbcal]

I believe so. S&P500 peak was 2/19/20.

Oh yeah - he says so in the text in the graph.

Yes, both the 1987 and 2020 lines begin from their market peak.

 

[ERD50]

Interested, but could we make the starting point something like a year before the drop?

To me, that chart looks so much scarier than reality - 1987 (including divs) was an up year for investors. Drops from a peak really only matter if you won the lottery and put all your money in on that day. That's probably no one.

-ERD50

 

[mpeirce]

I recall 1987. I was only out of school a few years and had a very modest 401(k).

Where I worked was a "bull pen" setup with everyone sitting in a room together to work on a specific project. I sat next to a woman who literally panicked and she sold her entire portfolio near the bottom. As the market recovered, she kept her money out of stocks and so she really did lose money from the crash.

I always remember that episode when we hit downturns of various magnitudes and I always stay the course. It made a real impression on me even though I didn't lose anything back then.

 

[Lsbcal]

Interested, but could we make the starting point something like a year before the drop?

To me, that chart looks so much scarier than reality - 1987 (including divs) was an up year for investors. Drops from a peak really only matter if you won the lottery and put all your money in on that day. That's probably no one.

-ERD50

My thought was to compare two scary sudden market drops. In no way would I want to imply that this tells us what will come next. I'm not sure what would be gained by going into a lot more SP500 price comparison data.

Perhaps the very slow rise out of that 1987 drop might tell us something about how it takes time to rebuild confidence. The market did fully recover about 2 years out from the 1987 decline.

On a fundamental basis bonds were a fantastic value compared to stocks back in 1987. 10 year Treasuries paid 8.9% versus 0.9% now. The yield curve was steep, not inverted as it was recently. PE10 was at the 50% rank for the past 30 years whereas now it is around the 80% area. Etc, etc.

 

[target2019]

I believe so. S&P500 peak was 2/19/20.

Oh yeah - he says so in the text in the graph.

Yes, both the 1987 and 2020 lines begin from their market peak.

Thank you, folks.
1987 recovery peak-to-peak was about 20 months. Makes me sad.

 

[Momcpa]

Count me in as 'interested' in watching this graph as you update it.

 

[Closet_Gamer]

Yes, please do keep that updated!

Who knows how it plays out...

If this is just a demand shock with a V shaped recovery, we might even retake the highs by the end of the year.

If this leaks into the real economy in a sustained way that doesn't subside as soon as its safe to go the local bar, it clearly becomes a recession, likely global.

If people stop making housing payments and/or large corporations default on debt, we've got another financial crisis on our hands.