Black Monday refers to several stock market crashes on different Mondays: October 28, 1929, October 19, 1987, the market correction of August 24, 2015, and March 9, 2020.
The initial Black Monday happened on October 28, 1929. It occurred after Black Thursday, which started the 1929 stock market crash. On that day, stocks dropped by 12.82%. Before that, on Black Thursday, stocks fell by 11%. The following day, Black Tuesday, wiped out all the gains the stock market had made that year.
The big sell-off didn't directly cause the Great Depression of 1929, but it damaged people's trust in investing in businesses. When people found out banks used their savings to invest in Wall Street, they hurried to take out their money. Banks shut down over the weekend and only returned a small portion of people's savings. Lots of folks who never invested in stocks lost their life savings. Banks that didn't have money from deposits went bankrupt. This led to businesses struggling to get loans, and people couldn't buy homes.
Investors on Wall Street shifted to buying gold, causing the prices of gold to go up. Because the dollar was linked to the value of gold, people traded their dollars for gold, using up the gold reserves. To tackle this, the Federal Reserve increased interest rates to safeguard the value of the dollar.
This strict monetary policy made a tough recession even worse, leading to the Great Depression.
Black Monday typically refers to the second-biggest single-day decrease in the stock market. It happened on October 19, 1987, when the Dow Jones Industrial Average fell by 22.61%, dropping 508 points to 1,738.74. The S&P 500 also dropped by 20.4%, falling 57.64 points to 225.06. It took around two years for the Dow to recover from this loss.
For five years, the stock market had been doing well, rising steadily. Just in 1987, it went up by 43%, reaching its highest point of 2,746.65 on August 25. After that, it stayed at a slightly lower level until October 2. Then, it started falling quickly. In the two weeks before Black Monday, it dropped by 15%.
According to a study by the Securities and Exchange Commission, traders were worried about a new law going through the U.S. House Ways and Means Committee that could stop takeovers. The bill was proposed on October 13 and approved on October 15. In just those three days, stock prices fell by more than 10%, the biggest drop in 50 years.
The companies that were most affected by the legislation were the ones whose stocks dropped the most.
The proposed bill wanted to remove the tax deduction for loans used in corporate takeovers. In the 1980s, Michael Milken and Ivan Boesky were known for illegal trading based on secret information about mergers and acquisitions. Congress tried to control the markets with bills like this one. Black Monday happened as a reaction on Wall Street. Interestingly, the part about tax deductions was removed from the bill before it became a law.
The proposed bill wanted to remove the tax deduction for loans used in corporate takeovers. In the 1980s, Michael Milken and Ivan Boesky were known for illegal trading based on secret information about mergers and acquisitions. Congress tried to control the markets with bills like this one. Black Monday happened as a reaction on Wall Street. Interestingly, the part about tax deductions was removed from the bill before it became a law.
Another thing that added to the situation was an announcement made on October 16 by Treasury Secretary James Baker. He suggested that the United States might lower the value of the dollar. Baker wanted American stocks to be less expensive for foreign investors, so many of them began selling. Baker believed that a lower dollar could help bring down the worrying increase in the U.S. trade deficit.
Lots of people were worried that the crash would lead to a recession, but the Federal Reserve took action by putting more money into banks. This helped the market become more steady. By the end of October, the Dow had already gone up by 15%. For the rest of the year, it stayed within a small range of values, bouncing between 1,776 and 2,014. This situation foreshadowed the 1989 Savings and Loan Crisis and the recession in 1990-1991.
Source: S&P Dow Jones Indices
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On August 24, 2015, the Dow fell by 1,089 points to 15,370.33 right when the market started, marking a 16% decrease from its high point of 18,312.39 on May 19. But it bounced back quickly and ended the day only 533 points lower than the opening. This big drop, which was a 10% decrease, was called a market correction, not a crash. It came after a 531-point fall the Friday before. Both drops were due to concerns about slower economic growth in China and uncertainty about China devaluing its currency, the yuan.
On March 9, 2020, the Dow fell by 2,013.76 points to 23,851.02, making it one of the worst single-day point drops for the Dow. This decrease of 7.79% was among the largest in percentage terms until Thursday, March 12, 2020. Even though it wasn't a Monday, March 12, 2020, marked the biggest percentage drop in a single day for the Dow since Black Monday in 1987. On that day, it fell by 2,352.60 points to 21,200.62—a drop of 9.99%.
Shortly after hitting its highest point at 29,551.42 on February 12, 2020, the Dow Jones lost 5,700.40 points or 19.3% by March 9, which was very close to a 20% decrease. Then, on Thursday, March 12, 2020, the Dow officially entered a bear market, ending an 11-year period of rising stock prices that began on March 5, 2009.
Stable funds and bond funds are some of the safest choices for your 401(k). When stocks go down a lot, these kinds of fixed-income investments usually aren't affected as much. But these safe investments might not give you as many chances for big gains. Younger people who have a lot of years to work have often done well by investing in stocks, even though there are times when the stock market goes down.
It's hard to predict when stocks will crash, but some traders still try. They use different methods like looking at patterns and studying a company's value to figure out when the market might start going down. But in general, most, if not all, folks often end up losing when they try to guess the market instead of just putting money in and waiting.
