By Kyle Cornell
October 19, 1987 marked the largest one-day drop, 23%, in the Dow Jones Industrial Average’s history. To this day, it still marks the largest sell off, and is commonly referred to as Black Monday. Investor sentiment at the time was at all-time highs, as the S&P 500 had realized a 100% gain over a two-year period. However, the Friday prior, the Dow was down 4 percent on the day and 10 percent on the week, which presented worries to investors who felt investor sentiment may not have been cautious enough. Given the market conditions on the week paired with computerized program insurance trading, the market was set for turmoil on Monday.
Program insurance is a computerized program designed to protect investors against pullbacks in the market. It was designed as a selling point to insure, or hedge portfolios, against potential downside. If the market dropped, investors would begin selling S&P 500 futures short and the gains from the short sells would offset and losses in the portfolio due to market turmoil. It served as a selling point for investors to protect portfolios. As Black Monday began and the market started declining and the program insurance kicked in. The turmoil flooded the market with orders from selling securities, as well as the short sells on futures. The flood of orders delayed the market by 10-20 minutes, which made the program insurance ineffective. Investors were not covering losses and the selling continued, which ultimately led to the 23% decline.
On October 17, 2017, two days prior to the 30-year anniversary of Black Monday, the Dow hit an all-time high surpassing 23,000 points. The Dow Jones and S&P 500 have hit multiple all-time highs this year, courtesy of strong macroeconomic reports and previewed deregulation and tax reform by President Trump. A portion of this year’s growth has been in anticipation of growth with the Trump Administration. If President Trump follows through with his plans, the market may continue its growth; however, the market may realize a downturn if these plans fall through.
Security Analysts for Bryant University’s Archway Investment Fund have recently performed industry analysis and have the following outlooks. Healthcare analysts have a long, bullish view due to strong research and development in the biotech and pharmaceutical subsectors, as well as increase in profits from low-cost outpatient care facilities. The Industrials group has a moderately long outlook due to forecasted increases in government spending, infrastructure spending, and the defense budget. Energy, Materials, and Utilities analysts have a short outlook on energy, room for growth in materials, and neutral in utilities. The Financials group has a bullish outlook due to a rising interest rate environment, deregulation, proposed tax reform, and strong current and future economic performance. Technology analysts see upside as well due to increases in discretionary income and the increase in innovation in artificial intelligence. Lastly, the Consumers group has a long approach on discretionary goods, due to a growing economy and rise in discretionary income. The group has a neutral view on staple
goods. Although the staples sector is seen as a safe haven for the market, the group feels that the current macro-economy promotes stronger growth and potential.