Black Monday – 25th Anniversary

 

Today is the 25th anniversary of the stock market crash of 1987. The Dow fell 23% in one session and lost over $500 billion. It remains the largest one-day percentage-point drop ever.
Markets in nearly every country around the world plunged in a similar fashion. Many economists predicted we were heading for a second great depression. The losses continued through that week, and by the end of the month most markets had suffered huge falls.
It began in Hong Kong which dropped 41% by the end of the month. The Federal Reserve immediately intervened to prevent an even greater crisis. Short-term interest rates were instantly lowered and the markets recovered fairly quickly.
There was even a post-crash bull market driven by companies that bought back their stocks which they considered undervalued after the market meltdown.
There could be another crash, but it will not have the same driver as 1987. The derivatives which contributed to Black Monday no longer exist.
The prophets of doom were wrong in 1987 and the long-term turnaround was remarkable. A decade after Black Monday, Bill Clinton finally agreed to sign legislation passed by the GOP Congress to significantly cut capital gains rates. Along with the Reagan recovery, it ranks as the greatest economic expansion in American history.

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