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WEEK AHEAD: OCTOBER 5

Short Description

It’s the first full week of the 4th quarter and October, a month in which the most historic market crashes have happened. I talk about if another one can happen this year because of the coronavirus pandemic- and I rundown the week’s economic calendar. Thanks! Rich

Video Script

Is a historic October MARKET CRASH coming? - THE WEEK AHEAD (Oct 5 - 9, 2020)

Hi everyone, I’m previewing the week ahead but it’s also the first full week of October- a month that is famous for its stock market crashes. This year we have the threat of a second wave of the coronavirus- so will one lead to the other? I will do my best to answer very shortly as well as giving a rundown of highlights from the week’s economic calendar.

So probably the most famous stock market crash was 1987. Since we’re coming off the back of the first Presidential debate, thought it was funny to note that in 1987 the magazine Newsweek ran a cover story with the headline "A Billion-Dollar Empire and an Ego to Match." It was of course about Donald Trump, who was in his heyday as a real estate developer and casino operator. He famously told chat show host Larry King in 1987 "I don't want to be president."

If that little ‘Trump throwback’ gave you a smile– please hit that like button – it really helps us spread the word about these videos!

It’s the National Day holiday across China for most of the week. Data-wise, we start with final service sector PMI data on Monday, which for the most part held up ok in flash readings. There’s the interest rate decision from the RBA on Tuesday. UK construction PMI could be interesting given the housing boom. FOMC minutes will be the big one on Wednesday because it will give some extra insight on views about the new inflation targeting policy made official at the last meeting. There is ECB minutes and China services PMI on Thursday. Then we finish the week with UK manufacturing production for August and Canadian jobs numbers.

So what I want to do is first give you a brief history of what happened in the big October crashes of 1987 and 1929. Black Tuesday was October 29, 1929 and marked the beginning of the Great Depression. Over a four-day period the Dow Jones dropped 25% in what is still the worst crash in history in percentage terms. The cause was generally thought to be a combination of over-optimism about the economy at the end of the roaring twenties and the invention of margin-trading a few years earlier, whereby investors would borrow to invest.

Black Monday was on October 19 1987 and the Dow Jones got smashed 22% in a single day- putting an end to a five year bull market. Actually the underlying economy was faring quite well and so the low on the day marked the bottom and prices eventually recovered. The drop was blamed on some of the first computerised trading systems called ‘portfolio insurance’. It just goes to show that fear is the main driver of a market crash, whether justified by the economics or not.

OK, so what are some of the reasons we could get another ’Black Day’ this October? I’ll give you my five top reasons. One the start of the flu season and the chance it could lead to another coronavirus lockdown. Two the end of government unemployment protection schemes. Three US election uncertainty. Four Brexit uncertainty. Five that interest rates are almost universally at zero and central banks will have to go into really unchartered waters for extra stimulus.

So these are all reasons it COULD happen, and then of course there is the chance of a black swan event – something utterly unpredictable. BUT remember, there is always a wall of worry for markets to climb and they could just easily climb this October’s wall.

Right thanks everyone, good luck trading and make sure to subscribe to our channel so you don’t miss the next video.
 

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