Similarities To 1987 Striking, But Times Have Changed

Monday was a decade and eight days past the 10th anniversary of the Oct. 19, 1987, stock market crash - an eerie coincidence that rattled investors, traders and regulators alike.

Though Monday’s plunge set statistical records across the board, this wasn’t a crash. It was an orderly rout.

But that didn’t make it any less painful to watch.

At roughly 3:25 p.m. Eastern time on the last Monday in October, the Dow Jones industrial average plummeted past its previous biggest one-day point loss ever of 508 without even pausing for a respectful moment of silence. Just minutes later, trading was halted at the New York Stock Exchange with the Dow off 554.26 points for the day.

The unsettled state of the market may reverberate for days or weeks. Whether it becomes a momentary blip in the nation’s collective economic memory - like the 1987 crash - or the beginning of something more fundamental can’t yet be known.

The U.S. economy is bigger and stronger and more resilient than a decade ago. The nation has recently been enjoying a confluence of robust growth, low inflation and low unemployment that has been called an economic “nirvana.” U.S. companies are more competitive, the dollar is stronger. Consumer confidence in the future is high.

Like 1987, last week’s stock trading was choppy and jittery, with a downward bias because of events in other parts of the world, nervousness over the quality of corporate earnings, and profit-taking.

In 1987, it was interest rates in Germany; this year, the currency crisis and stock market sell-offs in Asia were a factor in the U.S. stock market’s decline.

And in both 1987 and 1997, the stock market reached historic levels in August. On Aug. 25, 1987, the Dow hit the unprecedented height of 2722; this year, on Aug. 6, the Dow soared to a close of 8259.31. In each case, those lofty levels made investors nervous about how much longer the good times could last.

In both years, the nation’s leaders tried to reassure the country that the economic fundamentals were “sound.” On Monday, it was President Clinton through his spokesman, and later Treasury Secretary Robert Rubin appearing on the steps of the Treasury Building to assure the nation.

Federal Reserve Board Chairman Alan Greenspan was silent Monday, though he is due to talk Wednesday to Congress about the state of the economy. His powerful voice is one of those that recently has cautioned investors about market-mania. His warnings of “irrational exuberance” in the stock market last December caused a sell-off, as did his statement Oct. 8 that the economy is on an “unsustainable track.”

There are differences between 1987 and 1997 as well.

The market’s ability to absorb record levels of trading is one. Ten years ago, there was gridlock in the interlocking systems of trading and settlement. On Monday, Rubin said, “the payment and settlement system is working effectively.”

Another major difference is statistical. Monday’s 554-point loss translated into a 7.2 percent drop. The 508-point loss 10 years ago translated into the biggest one-day percentage drop in the market’s history, a decline of 22.6 percent.

The powerful bull market of the 1990s - with few setbacks - has been a steady climb to the stratosphere. The Dow has now officially “corrected.” It has lost 13.3 percent of its value since reaching August’s record closing high. Despite that, for the year, the Dow is still 11 percent higher than it was at the beginning of the year.