What Is Black Monday? In 1987,1929, and 2015

Black Monday
Traders signal offers in the Standard & Poor's 500 stock index options pit at the Chicago Board Options Exchange (CBOE) on August 24, 2015 in Chicago, Illinois. Uncertainty among traders after big losses in the Asian markets caused a sharp drop in the S&P at the open. Photo by Scott Olson/Getty Images

Black Monday is the name given to stock market crashes that occurred on three different Mondays. They are October 19, 1987, October 28, 1929, and the market correction of August 24, 2015. It also refers to the Monday after Thanksgiving, also called Cyber Monday

Black Monday 1987

Black Monday is used most often to refer to the largest one-day percentage drop in stock market history. It occurred on October 19, 1987, when the Dow Jones Industrial Average dropped 22.61 percent, falling 508 points to 1738.74.

The S&P 500 fell 20.4 percent, 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 rose 43 percent 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 percent in the two weeks leading up to Black Monday.

What caused the crash? A Securities and Exchange Commission study concluded that it was traders' fears over the impact of anti-takeover legislation that was moving through the House Ways and Means Committee. The bill was first introduced on Tuesday, October 13, and passed on October 15. In just those three days, stock prices fell more than 10 percent, the largest three-day drop in 50 years. Furthermore, the stocks that fell the most were the companies that would have been hurt the most by the legislation.

What did the bill propose? To eliminate the tax deduction for loans used to finance corporate takeovers. The 1980s 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' way 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, as well. 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 these programs acted at once. They couldn't find enough buyers for some stocks. As a result, the stock exchange halted trading. 

Another contributing factor was an announcement on October 16 by Treasury Secretary James Baker. He said 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 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 percent 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.

(Source: "Stock Market Crash 1987 and 1929," CNBC, October 17, 2007. "Charting the Dow," CNBC, October 17, 2007.)

Black Monday 1929

Black Monday also refers to October 28, 1929. It was the first Monday after Black Thursday, which kicked off the stock market crash of 1929. On Black Monday, stocks fell 13 percent. That followed the 11 percent 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 on 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, and people couldn't buy houses.

Wall Street investors turned to gold, driving up gold prices. Since the dollar was tied to the gold standard, people turned in dollars for gold, depleting 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 2015

On August 24, 2015, the Dow fell 1,089 points, to 15,370.33, as soon as the market opened. It was a 16 percent drop from its May 19 all-time high of 18,312.39. It quickly recovered, and closed just 533 points below the open. A 10 percent drops makes 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 Holiday Sales

Black Monday refers to the profit made during the holiday shopping season. To accountants, black means profitable retail sales. The day is also known as Cyber Monday because its a big online shopping day. It is the follow-up to the bricks-and-mortar shopping done on Black Friday, the first shopping day after Thanksgiving.