Black Monday is the name given to stock market crashes that occurred on four different Mondays. They were October 28, 1929, October 19, 1987, the market correction of August 24, 2015, and March 9, 2020.
- The first Black Monday was October 28, 1929; it was the first Monday after Black Thursday, which kicked off the stock market crash of 1929.
- The sell-off did not start the Great Depression of 1929, but it set the stage by shattering confidence in business investing.
- Black Monday is used most often to refer to the second-largest one-day percentage drop in stock market history, which occurred on October 19, 1987.
- The most recent Black Monday, on March 9, 2020, came a few days before the Dow entered a bear market, ending an 11-year bull market.
Black Monday 1929
The first Black Monday was October 28, 1929. It was the first Monday after Black Thursday, which kicked off the stock market crash of 1929. On that day, stocks fell by 12.82%. That followed the 11% decline experienced a few days earlier on Black Thursday. The next day was Black Tuesday, when the stock market lost the remaining gains it had made during the entire year.
The sell-off was not enough to start the Great Depression of 1929, but it set the stage by shattering confidence in business investing. As people realized that banks had used their savings to invest in Wall Street, they rushed to take out their deposits. Banks closed over the weekend, and then only gave out 10 cents on the dollar. Many people who had never invested in the stock market also lost their life savings. Banks without deposits went bankrupt. Businesses couldn't get loans. People couldn't buy houses.
Wall Street investors turned to gold and drove up gold prices. Since the dollar was tied to the gold standard, people turned in their dollars for gold and, consequently, depleted reserves. In response, the Federal Reserve raised interest rates to protect the value of the dollar.
This contractionary monetary policy turned a bad recession into the Great Depression.
Black Monday 1987
Black Monday is used most often to refer to the second-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 fell by 20.4%, dropping 57.64 points to 225.06. It took two years for the Dow to regain this loss.
The stock market had been in a bull market for five years. It had risen by 43% in 1987 alone, reaching a peak of 2,746.65 on August 25, 1987. It continued to stay in a slightly lower trading range until October 2. Then, it began falling dramatically. It lost 15% in the two weeks leading up to Black Monday.
What Caused the '87 Crash?
A Securities and Exchange Commission study concluded that it had been traders' fears over the impact of anti-takeover legislation that had been moving through the U.S. House Ways and Means Committee. The bill had been first introduced on Tuesday, October 13, and passed on October 15. In just those three days, stock prices fell by more than 10%, the largest three-day drop in 50 years.
The stocks that fell the most were the companies that would have been hurt most by the legislation.
The Proposed Law
The bill proposed to eliminate the tax deduction for loans used to finance corporate takeovers. The 1980s decade was the era of Michael Milken and Ivan Boesky, both of whom admitted engaging in illegal insider trading on upcoming mergers and acquisitions. This bill, among others, was Congress's attempt to regulate the markets. Black Monday was Wall Street's reaction. Ironically, the tax-deduction provision was stripped from the bill before it became law.
There were other contributing factors. Computerized stock-trading programs made the sell-off worse. They had set-points that automatically called in sell orders when the market dropped by a certain percentage. Dealers on the New York Stock Exchange were overwhelmed when all of these programs acted at once. They couldn't find enough buyers for some stocks. As a result, the stock exchange halted trading.
Let the Dollar Fall?
Another contributing factor was an announcement on October 16 by Treasury Secretary James Baker. He said that the United States might let the value of the dollar fall. Baker wanted to make U.S. stock prices cheaper for foreign investors, many of whom started to sell. Baker thought that a lower dollar would help reduce the alarming rise in the U.S. trade deficit.
Many feared that the crash would cause a recession, but the Federal Reserve started pumping money into banks. As a result, the market stabilized. By the end of October, the Dow had already risen 15% higher. It spent the rest of the year in a narrow trading range, between 1,776 and 2,014. It was a precursor to the 1989 Savings and Loan Crisis and the 1990-1991 recession.
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 16% drop from its May 19 high of 18,312.39. It quickly recovered and closed just 533 points below the open. A 10% drop made it a market correction, not a crash. It followed a 531-point drop the previous Friday. Both were caused by worries about slower economic growth in China and uncertainty over its yuan devaluation.
Black Monday 2020
On March 9, 2020, the Dow fell by 2,013.76 points to 23,851.02. It was one of the Dow’s worst single-day point drops in history. The percentage drop of 7.79% was one of the worst ever, that is until Thursday, March 12, 2020. While not a Monday, March 12, 2020, was the largest percentage drop in a single day in the Dow's history since Black Monday 1987. It dropped 2,352.60 points to 21,200.62—a 9.99% drop.
The Dow had just reached its record high of 29,551.42 on February 12, 2020. From that high to the March 9 low, the DJIA lost 5,700.40 points or 19.3%. It narrowly avoided a 20% decline on that day. However, by Thursday, March 12, 2020, the Dow entered a bear market, ending the 11-year bull market that had begun on March 5, 2009.
Frequently Asked Questions (FAQs)
How do I protect my 401(k) from a stock market crash?
Stable funds and bond funds are among the safest investments for your 401(k). When stocks crash, these types of fixed-income investments aren't typically impacted to the same degree. However, those safe investments also come with fewer upside opportunities. Younger investors with decades of working life ahead of them have historically benefited from investing in stocks, despite the occasional 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 try to determine when the market has peaked and will begin its decline. Most people, if not all, will find that they lose by trying to time the market rather than passively investing.