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Black Monday stock market crash of 1987 - could history repeat itself?

On the 30th anniversary of Black Monday, investors are questioning whether markets are overvalued

Investors should be cautious despite the rebound in stock markets, warns Aegon

Thirty years ago today, global stock markets drastically plunged and the Dow Jones Industrial Average suffered its worst day in history.

On the day that has become known as Black Monday, the Dow fell an eye-watering 22.6%, or 508 points, to 1,738.74. It remains the biggest slump in the Dow’s history in percentage terms.

The crash led to a 5% increase in hospital admissions due to anxiety, panic and depression, according to a University of California paper published in in The Journal of Finance last year.

Closer to home, the UK’s FTSE 100 fell 11% on Black Monday and further 12% the next day.

Black Monday came days after the Great Storm of 1987 – a violent cyclone that swept across England, France and the Channel Islands on 15 and 16 October.

What caused the crash?

Theories about what caused the market crash include a cyberattack against a stock exchange, a slowdown in the US economy, falling oil prices, tensions between Iran and the US, a market pricing system or a trading systems malfunction and a sudden change in market sentiment due to prospect of rising inflation.

“While the crash itself was short lived, it left a deep impression on many investors,” said Nick Dixon, investment director at Aegon. 

“Thirty years on and financial experts are again questioning whether markets are overvalued. Investors have experienced over eight years of strong growth, even in the face of unexpected political events like Brexit and Trump.”

The S&P 500, Nasdaq, Dow and the FTSE have all reached all-time records in the past week. The Dow is up about 1,231% since Black Monday to about 23,150 points.

Could history repeat itself? 

Dixon does not expect the same dramatic declines seen 30 years ago but he advised investors take a more “cautious and circumspect” approach as “elevated valuations have shifted the market environment considerably in recent months”.

In response to the changes, Aegeon has removed UK property from its portfolio as future rental growth looks subdued and could constrain capital values and aggregate returns.

Aegon has also reduced US equity exposure due to elevated risks in equity valuations compared to other geographies, which it thinks look more attractive.

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