Black Monday is the name given to stock market crashes that occurred on four different Mondays. They are Oct. 28, 1929, Oct. 19, 1987, the market correction of Aug. 24, 2015, and March 9, 2020.
- The first Black Monday was Oct. 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 Oct. 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 Oct. 28, 1929. It was the first Monday after Black Thursday, which kicked off the stock market crash of 1929. On Black Monday, stocks fell 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 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 Oct. 19, 1987, when the Dow Jones Industrial Average dropped 22.61%, falling 508 points to 1738.74. The S&P 500 fell 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 rose 43% in 1987 alone, reaching a peak of 2,746.65 on Aug. 25, 1987. It continued to stay in a slightly lower trading range until Oct. 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 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, Oct. 13 and passed on Oct. 15. In just those three days, stock prices fell 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
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.
Let the Dollar Fall?
Another contributing factor was an announcement on Oct. 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% 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 Aug. 24, 2015, the Dow fell 1,089 points to 15,370.33, as soon as the market opened. It was 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 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 2020
On March 9, 2020, the Dow fell 2,013.76 points to 23,851.02. It was one of the Dow’s worst single-day point drops in U.S. history. The percentage drop of 7.79% was one of the worst in history—that is until Thursday, March 12, 2020. While not a Monday, March 12, 2020, was the largest percentage drop in a day in the Dow's history since Black Monday 1987. It dropped 2,352.60 points to 21,200.62—that's a 9.99% drop.
The Dow had just reached its record high of 29,551.42 on Feb. 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 began on March 5, 2009.