The lessons of Black Monday

Thirty years ago this week, the U.S. stock market suffered its single most disastrous day

Traders on the floor of the New York Stock Exchange on Oct. 19, 1987.
(Image credit: AP Photo/Peter Morgan)

The smartest insight and analysis, from all perspectives, rounded up from around the web:

Thirty years ago this week, the U.S. stock market suffered its single most disastrous day, said William Watts at MarketWatch. On Oct. 19, 1987, the Dow Jones industrial average plunged 508 points, or 22.6 percent, spurring "a chaotic, daylong selling frenzy that ricocheted around the world." In today's terms, "a percentage fall of that magnitude would knock more than 5,200 points off the Dow." The Black Monday crash had many causes, but at its heart were overvalued stocks and the market's growing complexity. Computerized trading was still in its infancy but growing quickly, and financial derivatives had only recently come into widespread use, rendering the market significantly more complex — and vulnerable. "It was the first significant instance of computer-driven trading run amok," said Richard Dewey at Bloomberg​. One popular financial product, called portfolio insurance, was designed to protect investors by automatically selling index futures when markets fell. But those sales triggered a vicious sell-off cycle that lasted throughout the day. Investors and regulators all "learned the hard way that markets, left to their own devices, can and will break down into panic and chaos."

Subscribe to The Week

Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.

SUBSCRIBE & SAVE
https://cdn.mos.cms.futurecdn.net/flexiimages/jacafc5zvs1692883516.jpg

Sign up for The Week's Free Newsletters

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

Sign up
To continue reading this article...
Continue reading this article and get limited website access each month.
Get unlimited website access, exclusive newsletters plus much more.
Cancel or pause at any time.
Already a subscriber to The Week?
Not sure which email you used for your subscription? Contact us