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Market timing signals for stock and bond markets with integrated risk index ratings

Market crash of 1987

On this page you will find charts, which are illustrating the trends of important indicators during the stock market crash of October 1987.

Market crash of 1987 - Overview

On one single day, 19th of October 1987, also known as "Black Monday", the
- S&P 500 Index lost 20.5%, the
- Dow Jones Industrial Average Index lost 22.6% and the
- NASDAQ Composite Index lost "only" 11.3%.

But this severe one-day US stock market crash also affected other international stock markets.

Market crash of 1987

Severe drop of US stock market

S&P 500 Index

The S&P 500 Index climbed to an all-time high on 25th of August 1987 at 336.77 index points. Two months later, on 19th of October 1987, the S&P 500 Index was at 224.84 index points, which represents a decline of -33.24%.

S&P 500 Index 1987
New York Stock Exchange (NYSE) trading volume

New York Stock Echange (NYSE) trading volume

On 19th of October 1987 the stock trading volume at the New York Stock Exchange (NYSE) soared to 604 Mio. traded stocks. In comparison the average New York Stock Exchange (NYSE) trading volume in 1987 was only 189 Mio. stocks traded per day.

S&P 100 Index - Implied volatility

Starting on Friday, 16th of October 1987, the aggregated implied volatility of at the money index options on the S&P 100 Index soared from 36.37% to 150.19% on Monday, the 19th of October 1987. The intra-day high - and therefore the all-time high since inception of this volatility indicator - was at 152.48%.

Implied volatility S&P 100 Index - VXO Index - CBOE

Market crash - Potential reasons

Besides the rapid psychological shift of the market participants the following, traditional, potential reasons for the stock market crash of 1987 could be:

- rapidly increasing short term US interest rates - the annualized yield of 3 Months US Treasury Bills increased from 5.30% on 20th of January 1987 to the high print of the year: 7.19% on 14th of October 1987 - an increase of 189 basis points

- rapidly increasing long term US interest rates - the yield of 30Y US Treasury Bonds increased from the low print of the year: 7.29% on 9th of January 1987 to the high print of the year: 10.25% on 19th of October 1987 - an increase of 296 basis points

- weakening US Dollar - US Dollar showed weakness against major foreign currencies
deteriorating US current account deficit

- escalating US government debt

- very high price-earnings-ratios (P/E)

- very low dividend yields

- very bullish investor sentiment figures and too much optimism by investors

- deteriorating "market breadth" - weak advance-decline-line and new highs versus new lows

BUT there were no important events or major news prior to the Black Monday in October 1987 justifying the drastic decline of US equities and the following severe drop of other international equities.

Crash 1987 - key market indicators

US Treasury Bills

US treasury bills yield - 3 months
US treasury bonds yield - 30 years

Treasury bonds

US treasury bond futures

US treasury bond futures CME
US Dollar index futures

US Dollar

US current account

US current account deficit
Price-earnings-ratio (P/E ratio)

Price-earnings-ratio (P/E ratio)

Dividend yield

Dividend yield of S&P 500 stocks
Market breadth - advance decline line - NYSE

Market breadth - advance decline line

Market breadth - new high and new lows

Market breadth - new highs and new lows
Commodities price index

Commodities price index

Gold price

Gold price
Crude oil price

Crude oil price

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