Black Monday (1987)

Quick Facts: Who was Black Monday (1987)?

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Black Monday (1987)

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A severe, unexpected global stock market crash that occurred on October 19, 1987.

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Origins & Early Life

Black Monday (also known as Black Tuesday in some parts of the world due to time zone differences) was a global, severe and largely unexpected stock market crash on Monday, October 19, 1987. Worldwide losses were estimated at US$1.71 trillion. The severity sparked fears of extended economic instability or a reprise of the Great Depression. Possible explanations for the initial fall in stock prices include a fear that stocks were significantly overvalued and were certain to undergo a correction, persistent US trade and budget deficits, and rising interest rates. Another explanation for Black Monday comes from the decline of the dollar, followed by a lack of faith in governmental attempts to stop that decline.

Career & Major Achievements

In February 1987, leading industrial countries had signed the Louvre Accord, hoping that monetary policy coordination would stabilize international money markets, but doubts about the viability of the accord created a crisis of confidence. The fall may have been accelerated by portfolio insurance hedging (using computer-based models to buy or sell index futures in various stock market conditions) or a self-reinforcing contagion of fear. The degree to which the stock market crashes spread to the wider (or "real") economy was directly related to the monetary policy each nation pursued in response. The central banks of the United States, West Germany, and Japan provided market liquidity to prevent debt defaults among financial institutions, and the impact on the real economy was relatively limited and short-lived. However, refusal to loosen monetary policy by the Reserve Bank of New Zealand had sharply negative and relatively long-term consequences for both its financial markets and real economy.

Enduring Legacy & Impact

During a strong five-year bull market, the S&P 500 index tripled from 102.42 on August 12, 1982, to 336.77 on August 25, 1987. The Dow Jones Industrial Average (DJIA) rose from 776 in August 1982 to a peak of 2,722 in August 1987. The same bullish trend propelled market indices around the world over this period, as the nineteen largest enjoyed an average rise of 296 percent. On the morning of Wednesday, October 14, 1987, the United States House Committee on Ways and Means introduced a bill to reduce the tax benefits associated with financing mergers and leveraged buyouts. Unexpectedly high trade deficit figures announced on October 14 by the United States Department of Commerce had a further negative impact on the value of the US dollar while pushing interest rates upward and stock prices downward.

Chronological Milestones & Life Events

1. 1982: 1982 Milestone — The Dow Jones Industrial Average (DJIA) rose from 776 in August 1982 to a peak of 2,722 in August 1987.
2. 1987: 1987 Milestone — Black Monday (also known as Black Tuesday in some parts of the world due to time zone differences) was a global, severe and largely unexpected stock market crash on Monday, October 19, 1987.

Notable Quotes by Black Monday (1987)

“From our perspective on the Brady Commission, Black Monday may have been frightening, but it was the capital-liquidity problem on Tuesday that was horrifying.”

Historical Fact-Check Quiz: Black Monday (1987)

True or False: “The primary cause of the 1987 crash was solely due to speculative bubble bursting in real estate markets.”

Answer (FALSE ❌): While overvaluation was a factor, contributing causes included unexpected trade deficit figures, rising interest rates, and automated portfolio insurance hedging.

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Frequently Asked Questions about Black Monday (1987)