Black Monday 1929
The first Black Monday was on October 28, 1929. This was after Black Thursday, which preceded the stock market crash of 1929. On that day, stocks fell by 12.82%. This drop followed an 11% decline experienced a few days earlier on Black Thursday. The next day was Black Tuesday, when the stock market lost the excessive gains it had made over the entire year.
The crash was not sufficient to trigger the Great Depression in 1929, but it set the stage by destroying confidence in business investments. When people realized that banks had used their savings to invest in Wall Street, they rushed to withdraw their deposits. Banks closed over the weekend, only to return 10 cents on the dollar. Many people who had not invested in the stock market also lost their life savings. Banks closed without deposits and went bankrupt. Businesses could not obtain loans. People could not buy homes.
Wall Street investors turned to gold and drove up gold prices. Since the dollar was tied to the gold standard, people exchanged their dollars for gold, thus depleting reserves. In response, the Federal Reserve raised interest rates to protect the value of the dollar.
Note: This combative monetary policy caused a bad recession to turn into the Great Depression.
Black Monday 1987
Black Monday is typically referred to as the largest one-day percentage drop in stock market history. It occurred on October 19, 1987, when the Dow Jones Industrial Average dropped by 22.61%, falling 508 points to 1,738.74. The S&P 500 declined by 20.4%, down 57.64 points to 225.06. It took two years for the Dow to return to the levels it was at before the drop.
The stock market had been rising for five years. It increased by 43% in 1987 alone, peaking at 2,746.65 on August 25, 1987, and continued to trade in a slightly lower range until October 2. Then it began to decline sharply, losing 15% in the two weeks leading up to Black Monday.
What caused the crash in 1987? A study by the Securities and Exchange Commission found that traders’ fears of the impact of anti-takeover legislation moving through the House Ways and Means Committee were the cause. The bill was first introduced on Tuesday, October 13, and was voted on October 15. In just three days, stock prices fell by over 10%, the largest three-day drop in 50 years.
The proposed bill aimed to eliminate the tax deduction for loans used to finance corporate acquisitions. The 1980s were the era of Michael Milken and Ivan Boesky, who admitted to participating in illegal trading on upcoming mergers and acquisitions. This bill, among others, was an attempt by Congress to regulate markets. Black Monday was Wall Street’s reaction. Unexpectedly, the provision regarding tax deductions was removed from the bill before it became law.
There were other contributing factors. Automated trading programs made selling worse. They had trigger points that automatically called for sell orders when the market dropped by a certain percentage. New York Stock Exchange brokers could not find enough buyers for some stocks. As a result, trading on the exchange stopped.
Another factor was an announcement made by Treasury Secretary James Baker on October 16. He stated that the U.S. might devalue the dollar. Baker wanted to make U.S. stock prices cheaper for foreign investors, many of whom began to sell. Baker believed that a weaker dollar would help reduce a frightening surge in the U.S. trade deficit.
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Many believed that the crash would lead to a recession, but the Federal Reserve began injecting money into banks. As a result, the market stabilized. By the end of October, the Dow rose by 15%. It spent the rest of the year trading in a narrow range between 1,776 and 2,014. This indicated the preliminary period for the savings and loan crisis of 1989 and the recession of 1990-1991.
Black Monday 2015
On August 24, 2015, the Dow fell by 1,089 points to 15,370.33 as soon as the market opened, a drop of 16% from the all-time high of 18,312.39 achieved on May 19. It quickly recovered and closed just 533 points away from the opening. The 10% decline made it a corrective drop rather than a crash. It was preceded by a 531-point drop the previous Friday. Both caused concerns about slow economic growth in China and uncertainty regarding China’s devaluation of the yuan.
Black Monday 2020
On March 9, 2020, the Dow fell by 2,013.76 points to 23,851.02. It was one of the worst point declines in a single day in the history of the index. The percentage decline was 7.79% and was among the worst ever, until Thursday, March 12, 2020. Although it was not Monday, it was the largest single-day percentage drop in the index’s history since Black Monday in 1987, when it fell by 2,352.60 points to 21,200.62 – a drop of 9.99%.
The Dow had reached a record level of 29,551.42 on February 12, 2020. Since then, until the low on March 9, the Dow lost 5,700.40 points or 19.3%. It barely avoided a 20% drop that day. However, by Thursday, March 12, 2020, the Dow entered bear market territory, ending an eleven-year bull market that began on March 5, 2009.
FAQs
How can I protect my 401(k) retirement account from a stock market crash?
Fixed funds and bond funds are among the safest investments for your retirement account. When stocks crash, these types of fixed-income investments are usually not affected to the same extent. However, these safe investments also come with lower opportunities for growth. Younger investors with long-term work contracts have benefited from equity investments, despite the potential for a crash.
When will the stock market crash again?
No one can say for sure when stocks will crash again, but that doesn’t stop many traders from trying. Some traders use a mix of technical analysis and fundamental analysis to attempt to identify when the market is at its peak and will begin to decline. Most people, if not all, find it better to lose in attempting to time the market rather than to invest passively.
Source: https://www.thebalancemoney.com/what-is-black-monday-in-1987-1929-and-2015-3305818
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