REVEALED: The Odds of Another “Black Monday”

REVEALED: The Odds of Another “Black Monday” by Brian Maher – Daily Reckoning

We lower our head… and pause in silent memory…

For the black crepe went up on Wall Street 31 years ago today — Oct. 19, 1987.

The Dow Jones plummeted 22.6% that distant “Black Monday”… its largest one-day fall ever.

A comparable blood-spilling today would plunge the index some 5,700 points.

How likely is an encore?

Answer shortly.

Meantime, the ghosts of October 1987 have the stock market spooked rather hard this month.

The Dow Jones closed another 327 points lower yesterday.

As of yesterday’s close, the index has sunk 1,500 points since peaking Oct. 3.

Both the S&P and Nasdaq also took good hard soakings yesterday.

We turn to the mainstream financial media for answers — likely weak answers — but answers.

Reuters, for example, spoons us this apple sauce:

U.S. stocks fell more than 1% on Thursday as the European Commission issued a warning regarding Italy’s budget and concerns mounted over the possibility of strained relations between the United States and Saudi Arabia.

Neither explanation passes our inspection. The market his digested tougher stuff.

MarketWatch supplies its own answer:

Investors continued to weigh minutes of the Federal Reserve’s September meeting, which were viewed as hawkish.

The reference is to Wednesday’s release of the minutes from the Fed’s September meeting.

But the Fed’s hawkishness is news to whom precisely?

Markets were already factoring in additional rate hikes.

Yields on the 10-year Treasury were higher, it is true. But the move was a relatively orderly affair. Markets have by now digested the recent spike that sent stocks careening nearly two weeks ago.

The Dow Jones was up 64 points today. But both the S&P and Nasdaq closed in red numbers.

Maybe stocks are simply out of steam.

Liquidity is running dry. This quarter may represent “peak earnings” for corporations as tax cuts lose their punch. Buybacks too will likely wither for the same essential reason.

Perhaps the worst is yet to come.

Or perhaps cheery earnings reports will keep the show going for a space — the answer eludes us.

But on this black anniversary of Oct. 19, 1987, what are the odds of another 22% one-day hemorrhaging?

We have previously noted that Black Monday was such a miracle of chance, it never should have occurred — in the history of the universe.

Can we therefore exclude the possibility of a sequel?

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