I\u2019m not superstitious, but there seems to be something about October that makes it a lightning rod for sell-offs.<\/p>\n
Next week will also be the 97th anniversary of the epic crash of 1929.<\/p>\n
That was the big one. The harbinger of the Great Depression, laying the groundwork for World War II.<\/p>\n
There\u2019s plenty of other anecdotal evidence for the October curse.<\/p>\n
In 2008, the Global Financial Crisis (GFC) was already in full swing. Lehman Brothers went down on September 22 (which is close enough, really), but the Dow Jones Index had its worst week ever in percentage terms in early October, and the S&P 500 had its worst month since 1987.<\/p>\n
There was the Panic of 1907, when something amusingly named the Knickerbocker Trust collapsed in late October, triggering a banking panic.<\/p>\n
That apparently led to the creation of the Federal Reserve.<\/p>\n
October 1989 and 1997 also saw Wall Street suffer single-day falls of 7%.<\/p>\n
Of course, there isn\u2019t any rational reason to back the notion of an October curse.<\/p>\n
It is a month when a lot of companies report their earnings, so it\u2019s not surprising that bad results can trigger investor jitters.<\/p>\n
But here we are in October, and the unpleasant prospect looms of the AI stock market bubble bursting.<\/p>\n
At this point, anybody who isn\u2019t watching New Zealand\u2019s fragile economic recovery with a sense of fatalism hasn\u2019t been paying attention.<\/p>\n
If Wall Street indexes are due for a correction, next year, poetically on cue for the 40th anniversary, would be preferable to now.<\/p>\n
The big question, if and when Wall Street plunges, is how bad the fallout would be in New Zealand.<\/p>\n
The 1987 crash was disastrous for the economy.<\/p>\n
Eventually we caught the Great Depression too. But the Black Monday crash of 1929 didn\u2019t register here immediately.<\/p>\n
I\u2019ve been through the Herald archives; it made a brief about a week after the event.<\/p>\n
NZ\u2019s dubious honour<\/p>\n
But 1987 was a doozy, and it unfolded in real time.<\/p>\n
It was so bad here that the Wikipedia page about the crash gives New Zealand its own section.<\/p>\n
A dubious honour, but one not bestowed upon Australia.<\/p>\n
Timing, as they say, is everything.<\/p>\n
The 1987 crash was timed horribly for this small South Pacific nation that had only just opened its economy to the global financial system.<\/p>\n
We had embraced the newfound financial freedoms with gusto \u2013 too much gusto.<\/p>\n
Kiwis piled into the local stock market, buying into listed and hot air investment companies built, in many cases, on promises.<\/p>\n
Paper fortunes were made, then lost on an alarming scale.<\/p>\n
The NZX fell nearly 15% on the first day on October 20.<\/p>\n
But the panic didn\u2019t abate. By the time it reached its trough in February 1988, the NZX had lost 60%.<\/p>\n
And that damage was bigger than the immediate financial losses.<\/p>\n
By mid-1988, daily turnover was down 75% from pre-crash levels, and in the year after the crash, New Zealand\u2019s market performed worst in the world.<\/p>\n
A generation of missing capital<\/p>\n
Unlike the US and Australia, New Zealand went into recession.<\/p>\n
By some measures, it was a decade before the market fully recovered its value; by others, it took 15 years, and some say it never has.<\/p>\n
A generation of New Zealanders was scared off financial market investing, meaning they missed out on big gains over subsequent decades.<\/p>\n
Many of them put their money into finance companies instead, only to be hit by the meltdown after the GFC.<\/p>\n
Local companies struggled for capital, and many good ones were snapped up cheaply by foreign buyers in the 1990s and 2000s.<\/p>\n
So, it was not good.<\/p>\n
Would it be different this time? Thankfully, the answer is a solid yes.<\/p>\n
New Zealand handled the GFC relatively well.<\/p>\n
Our market is a completely different beast from the overinflated and under-regulated mess of 1987.<\/p>\n
Anchored by power companies and solid dividend stocks, it\u2019s almost the opposite of the AI-fuelled Nasdaq.<\/p>\n
There\u2019s a case to be made that investors might treat it as a safe haven if tech stocks take a tumble.<\/p>\n
But when America sneezes, we all catch a cold.<\/p>\n
We\u2019re much more directly exposed to US stocks through KiwiSaver these days, and our balances would take an immediate hit if Wall Street crashed.<\/p>\n
To be fair, those balances have been flattered by the tech boom. <\/p>\n
But if they fall sharply, it might deliver a hit to already fragile consumer confidence.<\/p>\n
We\u2019d also suffer \u2013 as we did in the GFC \u2013 from the hit to global demand that US economic woes tend to cause.<\/p>\n
It would be enough to set our recovery back on its heels, for the third time in three years.<\/p>\n
So, touch wood.<\/p>\n
Is there a silver lining?<\/p>\n
Let me balance my catastrophising with some positivity.<\/p>\n
The sudden global demand shock that a major financial crash can cause would be disinflationary.<\/p>\n
Prices of oil and other commodities would typically fall sharply.<\/p>\n
A crash can be the event (as in the GFC) that breaks the circuit on a period of high inflation.<\/p>\n
And when you look at the commodities that might handle these shocks best, proteins \u2013 like our dairy and meat \u2013 stand out.<\/p>\n
A tech sector crash might also slow the pace of the AI arms race, which might not be a bad thing.<\/p>\n
This is silver lining stuff, of course.<\/p>\n
I\u2019m still hoping that the US markets calm down and make their way through the rest of this month in an orderly fashion.<\/p>\n
But if they do take a big tumble, it might liven up the last days of this interminable election campaign.<\/p>\n
Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003.<\/p>\n