Have We Forgotten?

I haven’t seen anything in the business pages today referencing October 19, 1987.  Have we all forgotten the devastation wrought that day? I was working just off Wall Street at the time at 26 Broadway. As you may recall, on Friday, October 16, when all the markets in London were unexpectedly closed due to the Great Storm of 1987 (I didn’t remember this aspect of the event) the DJIA fell 108.35 points (4.6%) to close at 2,246.74 on record volume. It would prove to be the appetizer to the following Monday’s main course.

On October 19, 1987, a day that became known as “Black Monday,” the stock market crashed as the Dow Jones Industrial Average plunged 508 points, or 22.6% in value, its largest single-day percentage drop.  A drop of that magnitude today would be roughly equivalent to a 5,760-point drop. We fret 300 points down days. What was to blame? Historians cite heightened hostilities in the Persian Gulf, fear of higher interest rates, a five-year bull market without a significant correction, and computerized trading that accelerated the selling and fed the frenzy. That’s scary, as all of those elements exist today with one exception; we are now in the midst of a nearly 10-year bull market.

After the Black Monday free fall, the New York Stock Exchange installed what are known as circuit breakers, designed to stop trading when stocks dive too far too fast. It’s a forced timeout to give investors a chance to calm down and interrupt a panic. Today, if stocks dived even 7% (level 1) and 13% (level 2), trading would be suspended for 15 minutes. A decline of 20% would shut down trading for the rest of the day. Let’s hope that we never see this again.

 

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