When most people think about a disastrous historic stock mark crash, their minds go toward the 1929 crash that kick-started the Great Depression. Anything that began an era called the Great Depression had to be the worst, right? In actuality, the worst stock market crash in American history wasn't Black Tuesday but Black Monday and it came many years later in 1987.
The 1987 stock market crash saw stocks drop twice as low as they did in '29, and the Black Monday effects can still be felt today. In fact, despite the devastation of the crash, little to no reforms were made (this is one of the reasons the 2008 crash was able to happen, although on a much smaller, but still quite devastating, scale). The 1987 stock market crash recovery took two years to reach a new closing high, but as recent repeated history would show, lessons were all too quickly forgotten.
Black Monday Was Twice As Bad As Black Tuesday
Black Monday is thusly named because on that day Wall Street saw the largest percentage declines in history since its inception. For perspective, on an average day the Dow will go up or down around a few tenths of a percentage point. In 1929 it went down 13% but 1987's Black Monday saw a 22.6% one-day decline. While 2008 had greater overall declines, no single day has ever compared to the decline experienced on October 19, 1987.
Black Monday Led To A Better Understanding Of The World Market
Although Black Monday, which occurred on October 19, 1987, was a devastating market crash for the U.S., but it also highlighted a new concept of globalization. The crash led people to see the ways global markets interacted with and affected each other. Suddenly people understood they needed to be paying more attention to how markets outside of the US were faring, such as looking to Asian markets to see how their successes and failings would ripple over to the US market.
The 1987 And 2008 Crashes Were Eerily Similar
One would think that after such a devastating crash, the market would change somehow, and it did, but only slightly. The fact that so few reforms were made to the market after 1987 contributed directly to the 2008 crash, which led to a major recession in the US. The increasingly large scale of the unified market was put into the hands of bankers, insurers, investors, and brokerage firms who had previously had a much smaller jurisdiction. Panic spread after the crash, causing a ripple effect, and the players involved were unequipped to deal with the enormity of the problem.
The primary cause of the 1987 crash was financial derivatives and "The cross-market strategies used by these big investors linked the futures, options, and stock markets together in ways that were unforeseen and unprecedented." This betting on the future approach is precisely what caused the 2008 crash.
Wall Street Had Become So Glamorized People Were Numb To How Easily It Could Crash
It makes sense that people tend to focus on extremes, which is part of what can contribute to a stock market crash such as that of '87. Which is important to keep in mind to prevent a similar crash in the future. Unfortunately, in 1987 the public's attention was entirely focused on Wall Street leading up to the crash. A book depicting Wall Street excess was a bestseller (The Bonfire of the Vanities) and a film (Wall Street) depicting cutthroat stock trader Gordon Gekko (Michael Dougals) was in production during the crash and premiered in December 1987.