20-Year Anniversary of 1987 Dow Crash
Comes and Goes With Little Notice

On October 19, 1987 the Dow fell 508 points or 23%

October 21, 2007       Leave a Comment
By: Jerry Cole - Retirement, Investment

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The 20th anniversary of the market crash of '87 came and went with just a slight perturbation. Although a drop of 366.94 points is nothing to sneeze at, it represented just 2.64% bringing the Dow Jones Industrial Average to 13522.02. The blue chip average is still up 8.5% for the year.

On October 19, 1987 the Dow fell 508 points or 23%.

A similar 23% drop in the Dow average yesterday would have resulted in a negative 3194.46 points! Now that would have been cause taking somebody to the woodshed, or blaming the politicians or the wife or husband, or whatever.

For reasons analysts don't fully understand, October has been the month for market crashes and other sudden drops. It was in October that stocks crashed in 1929, falling 23% over two days. On October 27, 1997,within a day of the anniversary of the 1929 crash, the Dow Jones Industrial Average fell 7.2%.

Yesterday's decline was more than likely due to the continued impact of credit woes, combined with the sky-high oil prices and lackluster earnings. Wachovia became the latest in a string of banks to announce that earnings had taken a hit from the credit-market turmoil in July and August. When financials are weak it hurts everything. The high price of oil is also bearing down on the market because higher energy costs can turn off consumer spending and reduce profits of non-energy companies. Crude-oil futures for the week jumped $4.91 per barrel to $88.60. During the day yesterday oil prices crossed over $90 per barrel.

Interestingly, there was a glimmer of good news this week from the home-mortgage market. More people are managing to keep up with payments on loans made in recent months, according to data from First American LoanPerformance, a San Francisco research firm. This obviously reflects more conservative lending policies adopted by mortgage companies in the wake of a surge in defaults and foreclosures. Still, defaults continue to rise in proportion to the overall number of home loans outstanding. Most of those loans were made between 2003 and 2006 when the standards for loans were much more lax.

The third quarter was indeed somewhat volatile. And you can see from the earnings reports so far for that quarter that the economy is slowing down. The Federal Reserve's reduction in interest rates seems to be getting trumped by the fear of a general credit crunch. But all this would not seem a recipe for a bear market. Bear markets usually require two key ingredients: euphoric sentiment and major negative fundamentals. Neither of these exists in today's market.

You have to believe that when the headlines are more about Paris Hilton and Britney Spears and their visits to the joint, there's not much to complain about with this economy. Talk about global warming fears and congressional tussling over Iraq war funding is negative but does not have a great impact on the global economy.

So keep your risk within your tolerance and keep ahead of inflation.

I invite your questions.

(The opinions expressed are solely those of the author and not Gen worth Financial Securities Corporation.)

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Jerry Cole - Retirement, Investment
Jerry Cole has been a Financial Planner for almost 30 years in the Tri-City area and holds and MBA from USC. More from Jerry Cole - Retirement, Investment

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