1987 and Now: One Major Difference

Perhaps the most noteworthy aspect of recent market news (besides the panic selling in most emerging markets) is the talk that the current period is shaping up a lot like 1987. Monday, the Drudge Rreport carried a headline saying the markets “Are Like 1987 Crash”. Even the usually optimistic viewers of CNBC’s Kudlow & Co seem to be on edge as 39% of Monday's night’s poll respondents believed the market was likely to trace out a pattern similar to 1987.

While there are certainly similarities between now and then (falling bond market and weaker dollar), there is one glaring difference between now and 1987 which makes a similar crash unlikely. The market's run up to now has been modest when compared to the gains leading up to the crash. The chart below compares the performance of the S&P 500 two years before the 1987 crash with the performance of the S&P 500 today. In 1987, the stock market was up over 80% in the two years leading up to the crash, and following the crash it was still up 20% vs. its levels two years earlier. In the current period, the S&P 500 is up only 18% over the last two years: