Frequently, we hear about stock market crashes and find worried faces of investors in front of the stock exchanges in the newspapers. Some devastating stock market crashes happened in 1907, 1929, 1987, 1997, 2007-08, and at last in 2020 due to Covid.
Today I’m going to write about the infamous stock market crash that happened in 1987, which is also known as the Black Monday.
“Black Monday” refers to the catastrophic stock market crash that occurred on Monday, October 19, 1987. On that day, stockbrokers in New York, London, Hong Kong, Berlin, Tokyo, and just about any other city with an exchange stared at the figures running across their displays with a growing sense of dread. A financial strut had buckled, and the strain brought world markets tumbling down.
Some imminent warning signs for investors were evident in the trading days just prior to what would turn out to be Black Monday. On October 14, the Dow experienced a major decline of nearly 4%. It dropped another 2.5% the following day. And the day after that, October 16, the Friday before Black Monday, saw a devastating 5% loss in London stock markets that, ominously, coincided with the Great Storm of 1987, an unprecedented severe weather phenomenon that produced hurricane-force winds in the English Channel and resulted in nearly two dozen fatalities.
On Monday morning, the crash started in Hong Kong. The crash continued throughout all of Asia and all during the Asian trading session, as other markets began to feel the “aftershocks” of the initial crash. The market carnage continued, spreading throughout Europe when the London market session opened. By the time the U.S. stock markets opened, stocks were virtually in freefall. By the end of the day, the DJIA (The Dow Jones Industrial Average) had dropped by more than 500 points and the S&P 500 by more than 55 points.
Many market analysts theorize that the Black Monday crash of 1987 was largely driven simply by a strong bull market that was overdue for a major correction. 1987 marked the fifth year of a major bull market that had not experienced a single major corrective retracement of prices since its inception in 1982. Stock prices had more than tripled in value in the previous four and a half years, rising by 44% in 1987 alone, prior to the Black Monday crash.
However, two of the major contributing factors to the severity of the Black Monday crash were computerized trading and portfolio insurance trading strategies that hedged stock market portfolios by selling short S&P 500 Index futures contracts.
Lots of institutions as well as people went into bankruptcy due to this Black Monday. Lots of people became unemployed and lost jobs, many committed suicides. Since 2019, some tv-series are being made and telecast on the incidents of Black Monday.
A G M Alamgir Tipu,
Intern, Content Writing Department, YSSE
