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“It’s the nearest thing to a meltdown that I ever want to see.” – John Phelan, NYSE Chairman (1987)

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35 years ago today, US stocks experienced their largest single-day decline in history as the Dow dropped 22.6%. Back then, before most Americans had 401Ks, the stock market wasn’t nearly as enmeshed in the lives of Americans as it is today, but the plunge still was THE story of the day prompting questions over whether it was a repeat of 1929 and the depression that followed.  With the benefit of time and hindsight, the market and economy quickly moved on from the 1987 crash, and it barely even registers as a blip on long-term stock charts.  Since the close on 10/19/87, the S&P 500 has had an annualized total return of 10.71%.  Even more notable, though, is that had you invested in the S&P 500 on the Friday before the crash, you’re annualized total return over that span would have still been just short of 10% (9.99%). Not bad for the worst-timed trade of all time.

Moving to the present day, 2022 has actually been worse than 1987.  After the crash in 1987, the S&P 500 was down less than 8% YTD.  Today, even after a gain of nearly 4% over the last week, the S&P 500 is down more than 20% YTD or twice the decline of the S&P 500 at this point in 1987.

This morning, futures are in the red after trading higher overnight as yields surge with the 10-year nearing 4.10%.  Building Permits and Housing Starts were just released and came in mixed relative to expectations with starts missing forecasts while starts came in a bit higher than forecast.  Mortgage applications continue to decline, though, suggesting that the sector will continue to face pressure.

It’s now been a week since the S&P 500’s closing low on 10/12 (the intraday low was on 10/13), so we wanted to take a bird’s eye look at where things stand at the index and sector level.  Of the Russell 2000 (IWM), Nasdaq 100 (QQQ), and S&P 500 (SPY), IWM probably looks best from a technical perspective.  Of the three indices shown, it is the only one that didn’t violate the June lows on a closing basis and is also the only one that made a higher high even if it was just on an intraday basis.  For both QQQ and SPY, the charts look very similar as last week’s lows represented lower lows, and the rally over the last few days has yet to make a higher high.

At the sector level, Financials have been leading the charge, rallying more than 6% over the last week.  Of the remaining ten sectors, the only one not up more than 2.5% is Utilities.  Despite the gains from the last week, though, the only sector that has managed to retake its 50-day moving average is Energy, and four sectors (Technology, Real Estate, Consumer Discretionary, and Utilities) still remain at oversold levels.

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