Stock market 1987 similarity with China's stock market today …
UBSGross domestic product never went negative in 1987 — even with crazy stock-market drop.
The Dow Jones Industrial Average plunged a shocking 508 points — or about 22.6% — back on October 19, 1987.
But as scary as that drop was, US economic growth was resilient, and gross-domestic-product growth never went negative.
If you’re thinking about the 1987 crash in the context of the big picture, this is the one thing to remember.
It’s especially relevant given today’s volatile stock market in China.
“Similarly, [UBS China Economist] Tao Wang sees limited economic fallout from China’s equity-market plunge given that stocks represent only around 12% of Chinese household financial wealth and there is scant prior evidence of a substantive correlation between consumption and stock prices,” UBS’ Julian Emanuel said in a recent note to clients.
“Taking a page from former Fed Chairman Alan Greenspan’s playbook — where Fed easing was an immediate response to 1987’s stock-market dislocation … the Chinese authorities have undertaken a slew of support measures in the expectation that, like the US in 1987, economic activity might continue apace,” he added.
On top of that, analysts have previously suggested stock-market crashes typically lead to less severe recessions than something like, for example, a housing crash or a credit crisis.
Most notably, Lombard Street Research’s Dario Perkins compared the effect on GDP from both the dotcom crash and the subprime-mortgage crisis, showing that GDP continued to rise during the former, as it didn’t affect housing prices.
Stock-market crashes are scary and come with pain. But there are scarier things out there if you’re thinking about risks to the economy.
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Stock market 1987 similarity with China's stock market today …
