Stock Market Crash of 1987 – Black Monday

What is Black Monday?

Black Monday occurred on October 19th, 1987. It will go down as one of the single largest stock market crash in history. It received it’s name because that name has been commonly given to horrific events that occurred specifically on Monday’s. On black Monday the United States stock market crash 508 points in the DJIA, or in percentage terms 22.6%. At the time it was the largest market crash in a single day in terms of percentage drop.

Even before the market opened on Monday there was significant selling pressure. As the day progressed, specifically in the final 90 minutes of trading selling pressure exploded. It seemed like everyone wanted to get out of the stock market before it crashed. Sell order after sell orders continued to flood the market.

The continued selling pressure forced 195 of the 2,257 listed stocks to either delay trading or have a market halt. Due to the unprecedented trading volume many communications broker down, leaving orders unfilled or lost completely.

Aftermath

Less than 24 hours of the stock market crash the United States Federal Reserve jumped into action. The Federal Reserve used all of their powers to combat what had occurred the previous day. They instantly became the lender of last resort and started flooding the market with liquidity through the use of open market operations. They negotiated with large banks to lend capital to security firms.

At the head of all of this was Alan Greenspan, who since then has become famous for his intervention during this stock market crash.

Greenspan’s response to Black Monday ushered in a strong bull market. Additionally, it ushered in a strong regulatory response as there was a complete revamp of the trade-clearing protocols, which aimed to bring a uniformity to the stock market in the United States.