Could 1987-Style Crash Be Coming?
October 27, 2023: The stock market has been on a downward spiral in recent months, and some experts are warning that a 1987-style crash could be on the horizon.
In 1987, the Dow Jones Industrial Average fell 22.6% in a single day, the most significant one-day percentage decline in its history. Several factors, including rising interest rates, inflation, and the Iran-Contra affair, caused the crash.
Today, several similar factors could lead to a stock market crash. Interest rates are rising, inflation is at a 40-year high, and the war in Ukraine is causing uncertainty in the global economy.
In addition, the stock market is overvalued, according to some analysts. The Shiller price-to-earnings ratio, a measure of stock market valuation, is currently at 30. This is above the historical average of 16.
If interest rates continue to rise, it could lead to a decline in corporate profits. This would not be good for stocks, as investors would be less likely to invest in companies that are not making money.
Inflation is also a concern for investors. Inflation erodes the value of money over time, so investors need to ensure that their investments can keep up with inflation. If inflation continues to rise, it could lead to a decline in stock prices.
The war in Ukraine is also causing uncertainty in the global economy. The war has led to higher energy prices and supply chain disruptions. This uncertainty could lead to a decline in investor confidence, which could lead to a stock market crash.
While it is impossible to predict the future, it is important to know the risks that could lead to a stock market crash. Investors should carefully consider their risk tolerance and investment goals before making investment decisions.
Here are some additional details about the potential for a 1987-style crash:
- The Federal Reserve is aggressively raising interest rates to combat inflation.
- Inflation is at a 40-year high, and some economists believe it could increase.
- The war in Ukraine is causing uncertainty in the global economy and disrupting supply chains.
- The stock market is overvalued, according to some analysts.
- Investors should carefully consider these risks before making any investment decisions.
