October 19, 1987, marks the historic day when the FTSE 100 experienced a catastrophic loss of 10.8%. Following this crash was an even more dreadful Tuesday where the index plummeted by 12.2%. This day, known as Black Monday, is ingrained in financial history as one of the most terrifying market crashes.
Global stock markets collectively suffered a loss estimated at $1.7 trillion, showcasing the magnitude of the mass sell-off frenzy that gripped investors worldwide during that time.
Interestingly, October seems to hold a notorious reputation for volatility when it comes to the Footsie. The 5 largest one-day drops, and 6 of the top 10, all occurred in what can only be described as the month of financial fright – October, the same month as Halloween.
In light of this unsettling history, it is nigh impossible for me to overlook the risks. As someone heavily invested in the index, the prospect of October-induced turbulence sends shivers down my spine.
Here are key moments in history when the FTSE 100 experienced significant falls:
- 20 October 1987: 12.2%
- 12 March 2020: 10.9%
- 19 October 1987: 10.8%
- 10 October 2008: 8.6%
- 6 October 2008: 7.9%
Given these tumultuous past events, it is prudent to acknowledge the stark differences in the current landscape of the financial world.
The year 1987 saw Black Monday being attributed to an overextended bull run in US stocks, with the Dow Jones Industrial Average soaring 250% in the five years leading up to the crash. In contrast, the recent rally in the American stock market has seen the S&P 500 rise by 93% since October 2019, indicating a less drastic surge.
On the other hand, the market upheaval of 2008 was fueled by a global financial crisis. Today, while the world economy is yet to fully rebound from the pandemic, signs point towards a gradual recovery rather than a catastrophic collapse.
The idea of expecting the unexpected remains a cornerstone of effective trading strategy amidst impending uncertainty. If faced with a period of market instability, one share that stands out in weathering financial storms is National Grid (LSE:NG.).
National Grid possesses intrinsic qualities that shield it from economic downturns better than most. Operating in the essential sector of gas and electricity supply, the company proved resilient during turbulent times. Post events like Russia’s invasion of Ukraine and the onset of the pandemic, National Grid demonstrated stability and growth, reflecting its defensive nature.
The company’s monopoly in crucial markets eliminates the need for customer acquisition costs, while regulatory oversight ensures a level playing field. Despite mandatory investment requirements and regulated pricing, National Grid managed to increase its underlying earnings per share by 13% over three years, showcasing its reliability and predictability. Moreover, with a dividend yield of 5.9%, surpassing the FTSE 100 average, National Grid remains a beacon of financial steadiness.
In conclusion, while National Grid emerges as a beacon of stability in tumultuous times, the anticipation of market volatility remains uncertain. Therefore, it is essential to tread carefully and consider the risks before making any investment decisions.
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