As today is the 20th anniversary of the 1987 stock market crash, 24/7 Wall St. wanted to go back in time to review how the individual DJIA components held up around the time and how they have run to today.  Out of 30 DJIA components today, only 16 of today’s components were DJIA components at the time.  Out of these 16, it looks like only about 7 of these components are ‘mostly’ the same businesses as in major acquisitions or divestitures.  Almost all of these companies have made strategic acquisitions, so understand that the picture is somewhat distorted.  Also, these are all rounded numbers and meant to show the general themes only.

We wanted to see how each component did on the day of the crash (Oct. 19, 1987) and compare the price change at December 31, 1987 to pre-crash levels.  Lastly, 24/7 Wall St. wanted to compare today’s price changes to stock prices from the same day before the crash (keep in mind, this is 20-years later, and today’s price is a multiple of the pre-crash 1987 price). 

Read on as we have some exclusive commentary from Elaine Garzarelli, who predicted the 1987 crash.  If you look at today’s multiples to the prices even before the crash, you’d start to even wonder if crashes really matter for long-term investors and retirement funds on a big picture basis.  You’ll also wish you had a time machine.  These DJIA components are broken up into two groups today:

DJIA Comp. (ticker)                Oct. 19    Dec. 31    TODAY
American Express (AXP)     -26.30%    -24.30%    11X
AT&T (T)*                                 -9.60%     -11.30%    9.6X
Boeing (BA)                            -11.60%    -14.30%   14.3X
Chevron (CVX)*                     -16.60%    -18.90%    15.5X
Coca-Cola (KO)                    -24.60%     -5.30%      16.5X
Du Pont (DD)                         -18.30%    -10.50%     5.5X
Exxon (XOM)*                         -23.40%    -11.80%    16X
General Electric (GE)*          -17.40%    -12.40%    15X

DJIA                                          -22.60%    -13.70%    6.2X

We also wanted to ask market pundits of the time how today is different 20 years later, and Elaine Garzarelli was one of the more recognized pundits that was credited for having predicted the market crash in 1987.  This week she responded to an inquiry and told 24/7 Wall St.,  "It is a different world today..In October, 1987 inflation was 5%, long rates were over 10%, and the S&P500 was 35% overvalued.  In October, 2007 inflation is under 2%, long rates are near 5%, and the S&P500 is 30% undervalued…"  Garzarelli Research can be accessed at www.garzarelli.com to see more detailed takes on her research.  Thanks for the exclusive comments, Elaine.

Jon C. Ogg
October 19, 2007

* indicates transformed operations

** all figures calculated only once and are rounded numbers

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