30 Years After Black Monday: Can It Happen Again?Paul-Martin Foss
Thirty years ago today, the Dow Jones Industrial Average suffered its largest single-day drop in history, losing 508 points, nearly 23% of its value. With the Dow currently hitting new records and standing at over 23,000 points, are we poised for a repeat of Black Monday?
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It seems as though stock market growth won’t ever end. It was only in February of 2016 that stock markets were dipping below 16,000 points. Now, at over 23,000 points, the Dow is up nearly 50% in less than two years. That increase doesn’t correspond to any similar increase in productivity, employment, or other substantive measures of economic output, leading most reasonable people to speculate that the stock market is a massive bubble waiting to burst.
The only question then is, what will cause it to burst? Will it be a failing bank, continually poor economic data, or geopolitical concerns? Remember that Black Monday came at a time when tensions in the Middle East were rising. American ships in the Persian Gulf were being hit by Iranian missiles, prompting the US Navy to launch Operation Earnest Will.
The crash on Black Monday began in Asian markets but quickly spread worldwide. Given that recent world tensions have centered around North Korea and its increasingly bellicose rhetoric, could a military conflict in Asia precipitate another stock market crash? Remember that the last financial crisis saw markets lose more than 50% of their value, and the overheated levels stocks are at today could see those types of losses repeated. The next financial crisis may even be worse than 2008.
What’s clear is that the longer investors stay in the stock market, the greater the likelihood that they’ll get burned when markets finally come back to earth. That’s why it’s increasingly important that they diversify their portfolios before the bubble bursts, in order to protect their assets from losing significant amounts of money.
When markets crash, gold and silver will take off as they always do during times of crisis. Investors who have positioned themselves well by diversifying into precious metals will be poised to reap the rewards.