Ghost of 1987 crash spooking the markets

Friday is the 30th anniversary of Black Monday, the 1987 stock market crash, the largest one-day crash in the history of the Dow percentage wise.

On Black Monday the markets were hit with a tsunami of selling beginning with the Asian markets. By the time the closing bell rang in New York, the Dow Jones industrial average  fell  508 points to 1,738 for a 22.6% decline, the largest plunge in the Dow’s history.

I bring this up as the markets today hit daily record highs during the most unloved stock rally in history.

The trading volume today is off some 12% from last year’s levels, and many are blaming low volatility as the culprit.

“Volumes and volatility go hand and glove,” Phil Orlando, chief equity strategist at Federated told the WSJ. As indexes post modest gains over the last eight  quarters, “there’s no need to make radical adjustments in your portfolio, so as a result you’re just sort of riding on what you have,” he added.

There’s little impetus for people to sell off stocks and to buy other stocks since most shares are rising, so the volatility falls on a lack of churn.

So this October, with the knowledge of markets past not much of concern for most traders — who were in kindergarten in 1987 — futures are down triple digits this morning on the Dow as the VIX or volatility index rises 10%.

No reason to be alarmed just yet, market psychology is whistling past the graveyard.

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