"Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves." -- Peter Lynch
Story Time People often think of Halloween when they think of October. Not this guy. When I think of October, I think of Black Monday. Actually, I am experiencing chills running down my spine right now, as my mind drifts back in time. At the time, I was the lead clerk (trading assistants were known as clerks in 1987) for the Pershing division of Donaldson, Lufkin & Jenrette running booth ZZ in the Main Room of the trading floor of the New York Stock Exchange. At Pershing, we shared that booth with folks from EF Hutton and Salomon Brothers. That should illustrate just much things have changed. The Minnesota Twins had taken a two-game lead over the St. Louis Cardinals in the World Series, and the National Football League was trying to muddle their way through a work stoppage by playing their scheduled games using replacement players. It was the best of times, and it was the worst of times. Every one of us went home on Friday, Oct. 16, 1987, sick to our stomachs. We all knew that the Ugly Stick would be out on Monday. We just had no idea of the magnitude of what we were walking into.
Getting It Done We still baked bread the old way in 1987. Broker-dealers with a customer order still had to call someone on the trading floor. That someone still had to actually answer the phone for an order to be entered. We had to write the order down on paper, then clock "the ticket". We then had three minutes to represent the order and get back to the client. Three minutes! Seems strange in this era of micro-second executions, doesn't it? Well, in 1987, on Black Monday Oct. 19, three minutes was not enough. Not even close. The Dow Jones Industrial Average came in 508 points that day, or what was then 23%. After we took the orders by phone, and wrote them down by hand, we needed a floor trader (member) to execute the order and report back to us, so we could report back to the clients. There were too many orders, and not nearly enough floor traders that day. I don't remember what the actual volume was that day, but I do remember bragging that the aggregate share count of executed orders bearing my handwriting that day amounted to 1.7% of NYSE composite volume for the session. I told my fiancée that this was a big deal. She thought that I was an idiot. She was right. We worked from 4am to 11:30 pm every day that whole week, just to push paper. The fiancée? She still, for some reason decided to raise a family with me.
There would, over time, be other crashes. There would be terrorist attacks. We would lose friends along the way. Too many friends. However, all of that came after there was at least some automation at the point of sale, or at least after circuit breakers had been invented. I have never in all of my life experienced (except maybe that first night at Parris Island), been through and witnessed the all-out bedlam of that day.
The closing bell rang at 4pm that day, as it still does. We used to check with the specialists after the close on un-executed orders. This was called "checking your 'nothing done-s'" This usually took about 20 minutes. That day, the task took roughly three hours. After sifting through the wreckage that was my booth, I found an order at about 5pm that had never made it out of my booth. Sell 20,000 F (Ford Motor) at the market. Held. The order was clocked at 14:01. I had forgotten about the order. The trader who phoned it to me had never asked, and his client had never asked.
I called the trader and offered him a report. The trader called his client. The end client refused the report. Incredible. The next day, the entire market came just about half way back. With all of the multi-million share trades that I put together in my time. With all of the IPOs that I either led or assisted on back in the day, it is this 20,000 share order in Ford Motor that I never forget. Could have been a career-ender, given the state of the markets. Then, poof! It never happened.
08:30 - Initial Jobless Claims (Weekly): Expecting 240,000, Last Week 243,000. It appears as though the impacts of Hurricanes Harvey and Irma have been felt here. There will be some carry-over from those two storms seen in Continuing Claims, but the pop in first time claims may have run its course. That said, it has become impossible to estimate the impact of Hurricane Maria on Puerto Rico. Claims have dropped off decisively across the territory, making it clear that the ability to even file a claim has become extremely difficult.
08:30 - Philadelphia Fed Manufacturing Index (Oct): Expecting 21.4, Sept 23.8. Philadelphia is expected to go to the tape with a 15th consecutive month in a state of headline expansion after New York printed at elevated levels this past Monday. Will recent dollar strength have an impact here? Philadelphia is the most important regional manufacturing report that we see each month, and carries far more weigh on the national scene than does New York. This is your macro event of the day.
09:30 - Fed Speaker: Kansas City Fed Pres. Esther George is set to speak from Altus, Oklahoma this morning. Her topic today will be domestic economic growth. George will take questions today from both the media and the audience, though perhaps the most hawkish official at the Federal Reserve will not vote again on policy until 2019.
10:00 - Leading Indicators (September): Expecting 0.1%, August 0.4% m/m. I can think of no trader over the course of my career who acted at any time on the monthly release of this series. In fact, outside of myself, I don't even think that I've heard it mentioned. Non-event. Everything in it is priced in already. Next.
10:30 - Natural Gas Inventories (Weekly): Expecting 55 billion, Last Week 87 billion cubic feet. The good news is that natural gas popped earlier this week. The bad news is that it has come in a tad since then. Still, you show me support above $3.05, and I'll feel a little better about some of my energy longs, with or without similar support for crude. This series appears headed for its 29th consecutive weekly build.
14:00 - Federal Budget Statement (September): Expecting $2.5 billion, August $-107.7 billion. (Release rescheduled for today, tentatively.) August is historically one of the ugliest months of the calendar year from a federal budgetary point of view. August 2017 carried on with the tradition. The deficit is now running more than 10% above 2016 levels largely due to costs related to Social Security, and interest payments. Higher interest rates are a good thing, for the banks. They will also depress the value of assets currently held by the Federal Reserve as well as increase borrowing costs for the Treasury department on new debt -- a lot of new debt.
Sarge's Trading Levels
These are my levels to watch today for where I think that the S&P 500, and the Russell 2000 might either pause or turn.
SPX: 2578, 2571, 2563, 2558, 2549, 2541
RUT: 1521, 1515, 1508, 1500, 1492, 1484
Today's Earnings Highlights (Consensus EPS Expectations)
Before the Open: (BX - Get Report) ($0.56), (DHR - Get Report) ($0.95), (DOV - Get Report) ($1.13), (GPC - Get Report) ($1.28), (KEY - Get Report) ($0.35), (NUE - Get Report) ($0.79), (PM - Get Report) ($1.38), (DGX - Get Report) ($1.37), (SNA - Get Report) ($2.42), (TSM - Get Report) ($3.39), (VZ - Get Report) ($0.98)
Black Monday made headlines 30 years ago today. Check out our full Crash of '87 Special Report for the ultimate #TBT:
- What You Need to Know About Black Monday: Explainer
- Has Wall Street Employed Enough Tech to Protect Against Another Black Monday?
- What Led to the Black Monday Crash?
- Vanguard Founder John Bogle Reflects on Black Monday
Join Jim Cramer, CNBC's Jon Najarian and Other Experts Oct. 28 in New York
Jim Cramer will host CNBC's Jon Najarian, TD Ameritrade's JJ Kinahan, famed analytics expert Marc Chaikin and other market mavens on Oct. 28 in New York City to share successful strategies for active investors.
You can join them as they discuss how smart investors can make the most of options trading, futures contracts, fundamental and quantitative analysis and great ETFs to buy right now. Participants will also get a chance to meet Jim and other panelists and take photos.
When: Saturday, Oct. 28, 8 a.m.-3 p.m.
Where: The Harvard Club of New York, 35 West 44th St., New York, N.Y.
Cost: $250 per person.
Click here for the full conference agenda or to reserve your seat now.
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Originally published Oct. 19.