When is Black Monday returning? Market analysis between the past and the future

The debate about financial markets is intensifying around a troubling question: are we about to witness another Black Monday like the one that shook Wall Street in 1987? Analyst Jesse Cohen has highlighted this comparison with two charts, suggesting a possible similar trajectory between the historic crash four decades ago and today’s scenario. This analogy has brought attention to how current conditions could trigger a significant correction.

The Specter of 1987: How Black Monday Changed Markets

On October 19, 1987, the Dow Jones plunged over 20% in a single trading session, profoundly impacting investor psychology worldwide. This Black Monday wasn’t the result of a slow erosion of values but a sharp collapse fueled by multiple converging factors.

At the time, the stock market had soared dramatically in the preceding months, creating a potential overvaluation. The introduction of program trading, the first automated algorithms, amplified the massive sell-off, turning panic into a cascade of trades. Liquidity shortages during critical moments worsened the decline. Macroeconomic dynamics didn’t help: inflation was moderate, but interest rates were rising, and the US trade deficit raised concerns, creating fertile ground for instability.

What’s surprising is that despite the traumatic immediate impact, the 1987 Black Monday recovered relatively quickly compared to crises like 2008. However, the psychological scars remained, teaching the financial system important lessons about how rapidly panic can spread.

Overvaluation and Macro Risks: Factors Behind the Comparison

Why are bearish analysts like Jesse Cohen drawing parallels between 1987 and today? The reasons lie in contemporary dynamics that eerily resemble the past.

Valuation concerns: Major indices like the S&P 500 and Nasdaq have experienced substantial growth, with valuation multiples (price/earnings, price/sales ratios) reaching high levels. This raises questions about the sustainability of current prices relative to actual corporate earnings.

Monetary tightening: Central banks, led by the Federal Reserve in the US, have increased interest rates to control inflation. Such aggressive policies can slow economic activity, compress corporate profits, and reduce valuation incentives for stocks. The risk is a frantic search for balance between inflation control and economic growth preservation.

Geopolitical environment: International conflicts, supply chain disruptions, and commodity price volatility create an atmosphere of uncertainty. These factors undermine investor confidence and reduce risk appetite in portfolios.

Technological speed: Unlike 1987, today’s algorithmic trading operates at microsecond speeds. A wave of selling can amplify and spread within minutes rather than hours, turning an ordinary correction into a potentially faster crash. Risk control algorithms, designed to limit losses, could paradoxically accelerate declines when certain thresholds are reached.

Three Scenarios for Investors: From Correction to Black Monday Crash

What could happen in the coming months and years? Three trajectories illustrate possible outcomes.

Scenario A - Black Monday 2.0 (Severe downturn)

A destabilizing event triggers chaos: an unforeseen credit crisis, the collapse of a major financial institution, or a significant geopolitical escalation sow panic. High-frequency algorithms detect fear signals and amplify selling. Markets could see a correction exceeding 20-25% within weeks, retail investors withdraw to protect capital, large funds follow the trend, fueling volatility. Recovery depends on decisive central bank responses: rate cuts, massive liquidity injections, and market reassurance. This scenario is possible but not inevitable.

Scenario B - Moderate correction (Controlled management)

After a prolonged upward trend, investors start taking profits in an orderly fashion. Higher rates and moderate economic growth lead to a 10-15% correction—a manageable profit-taking. Authorities communicate transparently, economic fundamentals remain reasonable despite slowing, and markets avoid panic. The correction stabilizes, volatility decreases, and a gradual rebound begins. This is the “soft landing” scenario many policymakers aim for.

Scenario C - Continued bullish trend with limited volatility (Optimistic)

The economy remains resilient despite rising rates, inflation moderates without harming growth, and the economic cycle continues positively. Innovative sectors (technology, AI, renewable energy) continue attracting global capital, supporting indices. Central banks balance inflation control with maintaining confidence. Volatility is limited to brief corrections; Black Monday remains a memory of the past, and markets follow a long-term upward trend with temporary dips but no catastrophic crashes.

How to Protect Yourself from the Next Market Storm

Regardless of which scenario unfolds, investors should adopt a preparedness strategy. Monitor macroeconomic data, understand your risk tolerance, diversify across asset classes, and keep liquidity to seize opportunities during downturns. Jesse Cohen’s comparison to 1987 serves as a reminder that markets can surprise us, but history never repeats exactly.

The current context differs from 1987 in crucial ways: faster central bank interventions, stronger regulatory frameworks, more transparent information, and global interconnectedness enabling coordinated responses. There’s no inescapable fate leading to another Black Monday, though risks must be respected and constantly monitored.

Important warning: This article is for informational purposes only and does not constitute personalized financial advice or investment recommendations. Investment decisions should always consider individual circumstances, financial goals, and risk tolerance. Consult a financial professional before making significant transactions.