Wednesday, December 15, 2021
On October 19, 1987, the Dow fell 22.6 percent in a single session, the worst one day drop on record, with no headline disaster to explain it.
On this day in 1987, the Dow Jones Industrial Average fell 22.6 percent in one trading session. It remains the largest single day percentage loss in the history of the index, roughly double the worst day of 1929. There was no bank failure that morning, no war and no assassination. Markets in Asia and Europe had fallen first, and by the time New York opened, the selling was already moving on its own momentum.
Automated trading strategies made it worse. Portfolio insurance programs sold futures automatically as prices dropped, which pushed prices down further, which triggered more selling. Order systems fell behind, quotes went stale, and for stretches of the day nobody could tell what anything was actually worth. The Federal Reserve announced the next morning that it would supply liquidity to the financial system, and the market stabilized within days.
Black Monday is the reminder that a crisis does not need a cause you can point at. Circuit breakers exist now because of it, and they buy time rather than prevent losses. For a household, the useful preparation is structural rather than tactical. Cash you can reach without selling anything, a spending floor you already know, and a plan written before the day it is needed all keep panic from doing the deciding. That temperament is the subject of fear based financial markets, and the slower kind of downturn is covered in understanding recessions.
