October 19, 1987. This was a Monday, and for most people Mondays are the worst day of the week. But this particular Monday was probably the worst day ever for so many traders. That was the day the stock market collapsed in spectacular fashion, and it would be known in history as Black Monday.
Every day starts in the East, obviously, and so that financial day started in Asia as well. Americans were still sleeping soundly in their beds, but a few analysts had already noted the crash of the Hong Kong stock market. And the same thing was happening in Europe as well.
The calamity hit the US especially hard, as investors were “dumping stocks with reckless abandon”, according to an analyst quoted in a Time magazine article. And the results were terrifying.
The Dow Jones Industrial Average dropped 508 points or 22.6% of its total value. That was the biggest percentage drop ever recorded for a single day. That was a loss of more than $500 billion. People who heard about the crash in Wall Street tried to get in contact with their brokers, but they couldn’t because so many calls were pouring in that day.
It was so bad that the New York Times the next day alluded to the start of the Great Depression. Their headline read: “Does 1987 Equal 1929?”
Previous to the crash, the stock market was enjoying a bull market for the previous 5 years. So what led to this catastrophe? Several reasons have been proposed, and perhaps several of them contributed to the disaster:
Reagan was derided by many pundits when he described the crash as a “correction”, but time eventually proved him right. The Dow ended up with a gain of 1% for the year, and the S&P also gained 2%–they recovered the loss by the end of the year.