Is This 1987 All Over Again? What’s Driving the Market Meltdown?

Financial markets are supposed to capture the wisdom of the crowd, but on Monday the crowd ran in all directions waving its hands in the air screaming. Japan’s stock market fell the most in 37 years with a 12% plunge that wiped out all its gains for the year, while in the U.S. the VIX index of implied stock volatility briefly had its biggest rise ever. Panic hit.

The selloff was triggered by Friday’s jobs data prompting a sudden switch in the economic narrative from soft landing to hard landing. Add to the mix a period of deflating hype about artificial intelligence and a Bank of Japan rate rise designed to strengthen the yen. News that Warren Buffett’s Berkshire Hathaway had sold half its Apple shares and boosted its cash pile added to the pain.

But the triggers couldn’t possibly justify the scale of the moves. When a new trigger arrived, in the form of better-than-expected data on the service sector, markets partially rebounded and the Vix fell sharply — again, far more than the data could justify.

The selloff—which at one point had chip maker Nvidia down 15%—was so big because investors had been all-in betting that things would work out well. Now things have calmed a bit, the question is whether the unwind of these bets, and the leverage behind them, is done. If it resumes, will the selloff feed back into higher savings and a weaker economy or, worse, hit the financial system?

The extreme examples of past effects from big market falls are 1987’s crash, 1998’s Long-Term Capital Management blowup and 2008’s global financial crisis. History is never perfect, but so far this looks more like a (much milder) version of 1987 than it does the other two.

In 1987, the stock market had its biggest one-day fall ever, with the S&P 500 down more than 20% on Black Monday in October. Investors had built up excessive leverage after a stunning 39% gain in the year to August’s high, and the crash led both to big margin calls and to badly designed automated trading that exacerbated the selling. But the Federal Reserve poured liquidity into the banks, brokers didn’t default and the market made back all its losses within two years. The economy was fine.

The good news was that 1987 was all about markets: They went up, they went back down, no one else was hurt. The S&P made 36% in the eight months to its August 1987 peak, similar to the 33% it rose in the eight months to the end of June this year. As in 1987, this year’s gains came in spite of tight monetary policy and higher bond yields. Just like today, in 1987 investors were on edge and ready to sell to lock in the unexpected profit. The losses are smaller so far, but lucrative trades have reversed , just as they did for the market as a whole in 1987.

In 1998, the situation was much worse, although stocks recovered more quickly. Highly levered hedge fund LTCM was crushed when Russia’s domestic debt default created a flight to safety. LTCM was big enough that it threatened to bring down Wall Street institutions. The Fed cut rates three times and pulled together a group of banks to rescue the firm and wind down its trades slowly. Stocks took just four months to recover, but the easy money helped stoke the dotcom bubble, which popped two years later and led to a mild recession—and gigantic losses for investors in tech stocks.

We don’t know yet if any hedge funds have been taken out by the big moves in markets, which have brought heavy losses for those engaged in the “ carry trade ” of borrowing cheaply in yen and buying higher-yielding currencies such as the Mexican peso or dollar. Large swings in Treasurys on Monday might also have hurt, given the large positions hedge funds hold. Traders are betting that the Fed will slash rates, with a super-sized cut of 0.5 percentage points priced into futures for the September meeting (and far more earlier in the day).

The really bad outcome would be a repeat of 2008, but it seems highly unlikely. True, some large U.S. banks failed last year, due to bad bets on government bonds. But banks are much less leveraged than they were, and the system is less exposed to a liquidity crisis, as private lenders have taken on much of the risk that used to sit in banks. Big losses are entirely possible, and private funds could hit trouble, but that would take time and wouldn’t create the same system-wide crisis.

The ideal would be that excess in the stock market unwinds as in 1987 without creating wider trouble, hopefully more gradually than in 1987. AI enthusiasm could deflate stock prices much more—even after falling 30% from its June high, Nvidia has still doubled in price this year. But the market is already much closer to normal, with Monday’s falls leaving the Nasdaq 100 index up only 6% this year, and the S&P 7%.

If panic continues to abate, the Fed cuts and nothing breaks in the financial system, we should count ourselves lucky. But it would be good if investors could remember the sinking feeling they had on Monday morning, and try to be a bit wiser and less speculative.

Gold is one of the market’s go-to hedges in rocky times. Don’t forget that gold miners’ stocks are too.

The stock market’s gains in 2026 belie the rocky macroeconomic picture: elevated inflation, heightened geopolitical tensions, and jitters about the artificial-intelligence trade. That backdrop, in theory, should be the time for gold to shine. Instead, the price of the yellow metal has tumbled more than 5% so far, after last year’s blistering 65% rally. In part, the U.S. dollar’s recovery has stymied gold, which benefited from the greenback’s weakness in 2025.

Even with the precious metal’s recent weakness, gold mining stocks could be the best way to profit from this year’s uncertainty.

Gold miners “are a valuable hedge against macro risks that would likely be damaging for equities,” BCA Research’s Noah Weisberger and Rishabh Shah wrote this week.

Concerns about the Federal Reserve’s next moves to tackle inflation, the increasingly crowded AI trade, and steep valuations for tech stocks are just some of the drivers that could help gold’s price get on even footing— and lead to even bigger gains for miner stocks.

These stocks’ prices tend to outpace gold’s moves, because the companies have fixed operational costs. So when gold’s price rallies, their profit margins soar, and vice versa. For instance, the VanEck Gold Miners GDX +7.39% exchange-traded fund has fallen 11% this year as the metal has slumped.

Now, gold’s price just needs to stabilize to help miners’ stocks take off, and that seems to be happening. The precious metal has recently found support above the $4,000 level, and has stuck in a narrow range since the end of June. But its price rose ever so slightly in July, ending a four-month losing streak for the metal. Technical analysis also suggests that gold is due for a comeback.

Barron’s recently wrote that the pullbacks for both gold miners and the metal itself are overdone. Senior technical analyst Doug Busch noted that the VanEck ETF is on the “verge of a breakout” and has the potential to hit $11o in early 2027, up more than 40% from its current price.

Gold miners also have more than their role as a market hedge going for them. Their fundamentals are solid, too, says Chris Mancini, portfolio co-manager of the Gabelli Gold Fund.

“Precious metals miners are generating substantial amounts of free cash flow given profit margins of over $2,000 per ounce, and are returning this cash to shareholders through buybacks and dividends,” he said in an email.

“Buying the miners is a cheap way to get exposure to the price of gold,” he added. His fund owns Newmont NEM +6.71%, a Barron’s stock pick last year, and Agnico Eagle Mines as top holdings, as well as miners Northern Star Resources, Endeavour Mining, and Kinross Gold K+8.59%.

Miners are better businesses than they used to be, the BCA team added.

“Capex is more disciplined, margins are high and rising…and they are largely independent of the AI story,” Weisberger, BCA’s head of equities, and Shah, a senior analyst, wrote.

That last part is key. AI is disrupting the software industry and many other services and information-oriented businesses, and investors have piled into AI stocks. But ChatGPT, Claude, Grok, and other large-language models aren’t going to replace the need to mine for metals.

“Equity portfolios can benefit from exposure to quality that is uncorrelated to AI risk, and gold miners fit the bill,” the BCA team said.

They recommend that investors buy the VanEck Gold Miners ETF, which owns top miners such as Agnico, Barrick Mining ABX +7.24%, and Newmont.

An important bonus for big gold miners’ stocks is that their valuations are attractive after the gold’s pullback, too. The VanEck ETF is now trading at just a little more than nine times next year’s earnings estimates. That’s a big discount to its five-year average price-to-earnings ratio of 14, according to FactSet.

What’s more, the ETF is currently valued at a more than 50% discount to the S&P 500 SPX -0.17%, which is trading for about 19 times earnings estimates for 2027. Mining stocks have typically traded at just a 25% discount to the broader market over the past five years. So there is significant upside for the group if valuations move back toward normal levels.

One factor that complicates mining stocks as a market hedge, of course, is if stocks bounce back, which has been the case so far in August.

But both the market and economic outlooks remain cloudy, and investors remain nervous about the Fed’s next moves and AI stocks. Gold miners should do just fine, even if the anxious mood on Wall Street persists.

Is This 1987 All Over Again? What’s Driving the Market Meltdown?

Past routs offer lessons after Black Monday Morning