Numerous press headlines compared the infamous October 19, 1987, market crash with the March 12, 2020, drop of 2,352.60 in the Dow Jones Industrial Average (9.99%) and the 9.51% drop in the S&P 500. The stories were factually accurate by pointing out that the March 12 drop was the largest since “Black Monday” 1987, but they largely failed to consider what happened afterwards.

It is different this time

It is fair to say that it is different this time. The cause of the 1987 market decline still is widely debated in academic circles. In comparison, the current market disarray has a well-defined cause—the coronavirus and the potential economic impact it could have in coming months. History, however, clearly shows that regardless of what causes a market breakdown, the market recovers in time.

The October 19, 1987, market drop left the S&P 500 at 224.84, down 20.47% that day. Six and 12 months later, the S&P 500 was 14.71% and 7.39%, respectively, above the October 19, 1987, close. Five and 10 years after October 19, 1987, the S&P was up 49.83% and 130.28%.

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