Last week, all 3 major U.S. markets hit record highs once again.[i] The Dow added 2.00% to notch both intraday and closing records, the S&P 500 rose 0.86%, and the NASDAQ gained 0.35%.[ii] International stocks in the MSCI EAFE dipped by 0.32% for the week.[iii]

On Thursday evening, the senate passed the blueprint for a $4 trillion budget.[iv] The vote sets the stage for a tax overhaul that could lower taxes for many families and businesses.[v] In addition, some investors believe the promise of tax cuts could push market valuations even higher.[vi]

Other investors, however, have expressed concern about the continuing market highs. Although the economy is growing and corporate earnings are up, they fear a potential market correction.[vii]

Against this backdrop, last week marked a key milestone in financial history: the 30th anniversary of Black Monday¾the largest single-day market percentage drop in history. Remembering the over 22% loss the Dow experienced that day, some investors may worry about whether the same type of precipitous drop is possible today.[viii]

Why Today Is Different

In the wake of the 1987 crash, regulators implemented a series of “circuit breakers” to avoid anxiety-induced sell-offs.[i] These rules required a pause in trading if the Dow dropped by 10, 20, or 30%. Since implementing the circuit breakers, only one market-wide pause has occurred¾in 1997.[ii]

Over the years, regulators have updated the circuit breakers and connected them to S&P 500 performance rather than the Dow. But their function remains the same: to allow time to help understand and react coolly to dramatic market declines. These rules help prevent unnecessary fear and instability from taking over the markets.[iii]

Putting Performance in Perspective

While the recent market performance is impressive, it is not unprecedented. Hitting record highs doesn’t have to mean that a correction is ahead. In fact, a year after reaching a new peak, the S&P 500 has had positive growth 72% of the time. Rather than allowing fear or euphoria to drive choices, focusing on data and strategy remains important in every market.[I]

Looking ahead, this week will give us a clearer picture of our economic growth as the first readings of third quarter GDP come out on Friday.[ii] Many economists are predicting that the data will show another quarter of strong growth.[iii]

We encourage you to contact us if you have any questions about how market highs may affect your portfolio or long-term strategy. We are here to focus on your financial goals and investments, so you can focus on what truly matters to you.

ECONOMIC CALENDAR

  • Tuesday: PMI Composite Flash
  • Wednesday: Durable Goods Orders, FHFA House Price Index, New Home Sales
  • Thursday: Jobless Claims, Pending Home Sales Index
  • Friday: GDP, Consumer Sentiment

 

[i] https://www.bloomberg.com/news/articles/2017-10-20/a-record-in-records-for-u-s-stocks-rallying-sixth-straight-week

[ii] http://wsj-us.econoday.com/byshoweventfull.asp?fid=477656&cust=wsj-us&year=2017&lid=0&prev=/byweek.asp#top

http://wsj-us.econoday.com/byshoweventfull.asp?fid=477656&cust=wsj-us&wiconly=1&lid=0#top

[iii] https://finance.yahoo.com/news/amazon-alphabet-gdp-need-know-week-ahead-162749555.html

[i] http://www.npr.org/2017/10/19/558625600/the-30th-anniversary-of-black-monday-a-day-that-made-wall-street-quake

[ii] https://finance.yahoo.com/news/could-1987-stock-market-crash-050919703.html

[iii] https://finance.yahoo.com/news/could-1987-stock-market-crash-050919703.html

[i] https://www.cnbc.com/2017/10/20/us-stocks-tax-reform-senate-budget.html

[ii] http://performance.morningstar.com/Performance/index-c/performance-return.action?t=%21DJI&region=usa&culture=en-US

https://www.cnbc.com/2017/10/20/us-stocks-tax-reform-senate-budget.html

http://performance.morningstar.com/Performance/index-c/performance-return.action?t=SPX&region=usa&culture=en-US

http://performance.morningstar.com/Performance/index-c/performance-return.action?t=@CCO

[iii] https://www.msci.com/end-of-day-data-search

[iv] https://www.cnbc.com/2017/10/19/senate-passes-a-budget-moving-the-gop-closer-to-tax-reform.html

[v] https://www.cnbc.com/2017/09/27/read-the-full-gop-tax-proposal-here.html

[vi] https://www.forbes.com/sites/adamsarhan/2017/09/28/will-the-tax-cut-send-stocks-higher/#53857bd249bb

[vii] https://finance.yahoo.com/news/could-1987-stock-market-crash-050919703.html

[viii] http://www.npr.org/2017/10/19/558625600/the-30th-anniversary-of-black-monday-a-day-that-made-wall-street-quake