INVESTING

Black Monday in 1929, 1987, 2015, and 2020

Black Monday is the name for the market crash which occurred on four different Mondays. The dates included October 28 1929, October 19 1987 and the market correction that occurred on the 24th of August, 2015 and March 9, 2020.

Key Takeaways

  • It was the first Black Monday was October 28 1929. It is the Monday that was first observed following Black Thursday, which kicked off the market crash of 1929.
  • The sell-off was not the catalyst for with the Great Depression of 1929, however, it did set the stage for it by destroying the confidence of investors in business.
  • Black Monday is the term used most often to mean the second-largest drop in percentage on a single day in the history of the stock market that occurred on the 19th of the 19th of October, 1987.
  • Most recently, Black Monday, on March 9, 2020, occurred just days before the Dow began a bear market, which ended an eleven-year bear market.

Black Monday 1929

It was the first Black Monday was October 28 29th, 1929. The first day of Monday following Black Thursday which triggered the stock market crash in 1929. The day that 1929 was a crash, the stock market dropped by 12.82 percent. It was a follow-up to the decline of 11% that occurred just a few days prior the day of Black Thursday. The following morning followed Black Tuesday, when the market lost the gains it made over the whole calendar year. 

The selling off was not enough to kick off the Great Depression of 1929 however, it did created the conditions for it by destroying confidence in investing in businesses. When people discovered that banks were using the savings they had saved to fund Wall Street, they rushed to cash out their money. The banks were closed on the weekend, but only released 10 cents for every dollar. A lot of people who not invested in the market lost their savings. Banks with no deposits became into bankruptcy. Businesses were unable to get loans. The public couldn’t afford to buy homes.

Wall Street investors turned to gold, which drove up prices. Because the dollar was dependent on an international gold standard many exchanged their dollars to purchase gold and, as a result diminished reserves. In reaction to the depletion of reserves, the Federal Reserve raised interest rates to ensure its dollar’s value. 

Note

The monetary policy of contraction made a bad recession what is now the Great Depression.

 

Black Monday 1987

Black Monday is used often to describe the second-largest drop in percentage on a single day in the history of the stock market. It happened on the 19th of October 1987, 1987. The Dow Jones Industrial Average dropped by 22.61 percent, dropping 508.8 pts to 1,738.74. The S&P 500 was down by 20.4 percent, dropping 57.64 points down to 225.06. It took 2 years to allow the Dow to recover this loss. 1

The market was in an uptrend for the past five years. It was up by 43% just in 1987 to a maximum of 2,746.65 on the 25th of August 1987. It remained in a somewhat lower trading range until the 2nd of October. Then, it started to fall rapidly. It dropped 15% over the two weeks prior to Black Monday.

What Caused the ’87 Crash?

An Securities and Exchange Commission study concluded that the issue was traders’ worries about the effects of anti-takeover legislation, which was advancing through the U.S. House Ways and Means Committee. The legislation was first presented on 13 October, and then passed on the 15th of October. In the span of just three days, the prices of stocks dropped by more than 10%, making it the biggest three-day decline in more than 50 years.

Note

The stocks that dropped most were those who would have suffered the most by the new law.

The Proposed Law

The bill proposes to end the tax deductions for loans to finance corporate acquisitions. The 1980s was the time of Michael Milken and Ivan Boesky who admitted having engaged with illegal insider trading with respect to the upcoming deals and mergers. The bill, as well as other is a congressional attempt to regulate markets. The Black Monday event became Wall Street’s reaction. In a bizarre twist, the tax deduction provision was removed from the bill just before it was signed into law.

Computerized Trading

Other factors contributed to the sell-off. Computerized stock trading programs caused the sell-off to be more severe. They used set-points that automatically triggered sell orders whenever the market fell by a specific percentage. The dealers on the New York Stock Exchange were overwhelmed when all these programs were in action at the same time. They were unable to find buyers for certain stocks. This led to the stock exchange was shut down. 3

Let the Dollar Fall?

Another factor that contributed to the situation was an announcement made on October 16 of Treasury Secretary James Baker. Baker said it was possible that it was possible that the United States might let the value of the dollar drop. Baker was hoping to create U.S. stock prices cheaper for foreign investors, a large portion of whom were beginning to sell. Baker believed that a weaker dollar could aid in reducing the alarming increase within the U.S. trade deficit.4

Many were worried that the downturn could trigger a recession, however, it was not the case. Federal Reserve started pumping money into banks. The market was able to stabilize. In the month of October in the month of October, the Dow was already up 15 percent higher. The Dow remained for the remainder of the year within an extremely narrow range of trading, in the range of 1,776 and 2,014. 5 It was a prelude of the 1989 Savings and Loan Crisis and the recession of 1990-1991.

Black Monday 2015

On the 24th of August in 2015 the Dow decreased in value by 1 089 points, to 15,370.33 immediately after the market opened. It was down 16% from its high on May 19 of 18,312.39. The Dow quickly rebounded and closed just 533 points lower than the level at which it opened. A 10% decline resulted in an corrective market and not the result of a crash. The drop came after a 531-point decline the day before. 6 Both were the result of concerns over slowing growth in the economy of China and the uncertainty surrounding the devaluation of its currency, yuan.

 

Black Monday 2020

The 9th of March, 2020 the Dow dropped to 2,013.76 points, to 23,851.02. It was among Dow’s biggest single-day drops in the history of the Dow. The drop in percentage of 7.79 percent was among the most devastating ever. That continues up to Thursday, March 12 2020. Although it was not an official Monday the 12th of March 2020, which was the biggest percentage drop on a single day in the history of Dow ever since Black Monday 1987. The Dow dropped 2,352.60 points and reached 21,200.62–a 9.99 percent decline. 1

The Dow was close to hitting its record-setting peak in the amount of 29,551.42 the 12th of February in 2020. From that point until the low of March 9 the DJIA dropped 5,700.40 points, or 19.3 percent. It was just a fraction away from the 20% drop on the day. However, on the 12th of March 2020 the Dow was in a bearish market and ended the bull market of 11 years that was in place since March 5, 2009.

 

Frequently Asked Questions (FAQs)

How can I safeguard the funds in my 401(k) from the risk of a crash in the stock market?

Bond funds and stable money are the most secure investments to put into you 401(k). If stocks fall and the fixed-income investments don’t usually suffer in the same manner. However, they also have less potential for upside. Investors younger than 40 with years of work ahead have always profited from making investments in stock, despite periodic crashes.

 

When will the market crash once more?

It’s impossible to say that stocks will go down yet again, but that shouldn’t hinder traders from trying. Certain traders make use of a mix of technical analysis and fundamental analysis in order to determine when the market is at its peak and is about to begin a decline. The majority of people will, but not all, will discover that they are losing trying to predict the market instead of simply investing.

the authorAaron Krause

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