Interestingly, I recently saw an analyst bring out that classic comparison chart to discuss market risk again. The left side shows the famous Black Monday of 1987, while the right side is some kind of speculation about the current market. This comparison has sparked quite a bit of controversy, because the underlying logic is actually pretty sobering—those who are bearish are saying that the market now is just like the situation before October 19, 1987, with a major correction about to come.

Let’s look back at history. What does Black Monday in 1987 (Lunedì Nero) mean, exactly? The Dow Jones index plunged more than 20% in a single day. This wasn’t a slow bear market—it was a vertical crash. At the time, the market was severely overvalued, automated trading programs had just begun to emerge, and liquidity suddenly dried up. That day changed many people’s understanding of market risk.

Now, what are analysts drawing comparisons to? They point to several similar signals. First is the valuation issue. Indexes like the S&P 500 and Nasdaq have surged aggressively over the past few years, and valuation multiples such as the price-to-earnings ratio (P/E) and price-to-sales ratio (P/S) are at historical highs. Second is the policy environment. Over the past few years, the Federal Reserve has raised interest rates sharply to fight inflation; this tightening can directly suppress corporate profits and stock prices. On top of that, uncertainty in geopolitics and fluctuations in energy costs have made overall market expectations increasingly fragile.

More importantly, trading now is much faster than in 1987. Algorithmic trading and high-frequency trading dominate the market; once selling starts, the pace of the decline will far exceed human reaction capability. That’s why some people use Black Monday in 1987 to warn—this isn’t to say history will necessarily repeat itself, but rather that, under today’s technical conditions, extreme scenarios are easier to trigger.

But I should also point out a few realities. First, after Black Monday in 1987, the market rebounded quite quickly and returned to normal within a few months. Second, the current regulatory framework, circuit-breaker mechanisms, and central bank emergency measures are far more developed than they were in 1987. Third, although valuations are high, corporate fundamentals have not completely deteriorated.

If we really try to imagine a few possible scenarios, what’s the worst case? A certain black swan event suddenly ignites—such as a financial institution crisis or an escalation in geopolitical tensions—then algorithms and panic orders both get hit at the same time, and the market drops 20-25% within a few weeks. In this case, recovery depends on how strongly the central bank intervenes and how quickly market confidence is restored.

What about a moderate scenario? It would be a normal technical correction. Investors begin taking profits, plus economic growth slows down; after the market drops 10-15%, it finds support and then gradually recovers. This is actually the more common script.

And the most optimistic one? Economic resilience exceeds expectations, inflation is truly brought under control, central banks start cutting rates, and new growth momentum (such as AI and clean energy) continues to draw in capital—while the market keeps rising, with some volatility in between.

To be honest, comparing the current market to Black Monday in 1987 has both some logic and an element of overinterpretation. That crisis indeed reminded us of the market’s potential fragility, but today’s environment is vastly different. The key is to clearly understand your own risk tolerance, pay attention to changes in macro data, and don’t let short-term panic cloud your judgment. Markets will always be volatile—the important question is whether you’ve prepared.