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Investors compare the 2021 stock market recovery with the summer before the 1987 crash — should they do so?

Some investors have drawn similarities between the 2021 rise in the stock market and the pattern seen in 1987 when the relentless rally was completely canceled by the October “Black Monday” crash. However, analysts point out that there are some important differences.

DataTrek Research co-founder Nicholas Colas said in a note Wednesday that he certainly feels the comparison is appropriate, at least superficially.

“Everyone, from plug-in hedge fund managers to retail investors, makes money. The movie Wall Street debuted in late 1987, and Budfox has been working from home for the last decade. There may be, but the overall social mood is similar. “

However, when comparing the year-to-date performance of the S & P 500 Index, the comparison doesn’t look very good.
SPX,
+ 0.81%
,
He said. Benchmarks for large caps rose 36% until August 17, 1987, but were only 18% during the same period in 2021.

archive: Can the stock market plunge again 30 years after Black Monday?

Two years ago, the total returns of the S & P 500 in 1985 and 1986 were 31% and 18%, respectively, which is in line with the 2019 and 2020 returns recognized by the chorus. However, he argued that the 2021 rally was a “slight comparison” with what was happening in 1987.

In stock Almost low Wednesday the day after the average of 30 S & P 500 and Dow Jones Industrial Averages
DJIA,
+ 0.65%

Each recorded a record finish of 5 sessions.

Meanwhile, analysts at Bespoke Investment Group this week pointed out that the S & P 500 is moving at a record-breaking pace. Tuesday’s all-time high was not only the fifth in a row, but also the 49th in 2021. As a result, this year’s closing price was 78, surpassing the 1995 record of 77.

Bespoke analysts warned that even a 5% pullback could undermine the ability to maintain a record pace. They had a year in which the S & P 500 set a record of more than 40 by August 16 since 1950, while both 1995 and 1964 were leaders of the year, while 1987, 1997. Years like 1998 also hit record highs of over 40 at this point in the year, and none have exceeded 50 to finish the year.

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But more importantly, what does such a rapid closing price mean for full-year performance? Of course, there are exceptions, including 1987, but as you might suspect, it’s almost positive (see table below).

Bespoke investment group

Analysts say the S & P 500’s year-to-date profits are very similar to the median and average earnings over the last five years in the table.

“In the future, the median performance of the index for the rest of the year from the closing price of 8/16 to the end of the year will increase by 7.7%, with 4 out of 5 positive returns and all years. It was more than double the average remaining performance. It’s been years since 1950, “they write.

So what should investors do with it all?

Custom-made analysts pointed out that the usual warnings apply — there is no guarantee and past performance does not indicate future results — but the data says, “Strength often produces strength in the market. Emphasizes the observation.

Investors compare the 2021 stock market recovery with the summer before the 1987 crash — should they do so?

Source link Investors compare the 2021 stock market recovery with the summer before the 1987 crash — should they do so?

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