It was a Monday. Not just any Monday, but a day that felt like the world was actually ending if you worked anywhere near a trading floor. If you look at the charts for the stock market October 19 1987, you see a vertical drop that looks more like a cliff than a financial graph. The Dow Jones Industrial Average plummeted 508 points. That sounds like a boring Tuesday by today's standards, but back then? It was a 22.6% loss. In one day. Imagine waking up and finding out nearly a quarter of the entire U.S. market value just... vanished.
People called it Black Monday. Honestly, the "Black" part doesn't even do it justice. It was pure, unadulterated chaos.
The Day the Machines Took Over (Sorta)
Most people think crashes happen because of some massive war or a bank failure. But the stock market October 19 1987 was different. There wasn't one single "smoking gun" news event. Instead, it was a perfect storm of bad vibes and new technology that nobody really understood.
You had "portfolio insurance." It sounds safe, right? Like GEICO for your stocks. But it was basically a primitive computer program. When prices started falling, these programs were designed to automatically sell futures to hedge the risk. The problem was that everyone had the same programs. So, as the market dipped, the computers started selling. That pushed prices lower. Which triggered more selling. It was a feedback loop from hell.
Think about it. In 1987, computers were still clunky beige boxes. We were trusting these early algorithms to manage billions, and they basically drove the bus off a bridge because they were doing exactly what they were told to do.
What Really Happened on the Floor
The New York Stock Exchange was a madhouse. Phones were ringing off the hook, but nobody was picking up. Why? Because there were no buyers. If you wanted to sell your shares of IBM or Exxon, you needed someone to buy them. On October 19, the buyers just stayed home.
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"It was like trying to shove an entire stadium of people through a single exit door," one trader later recalled.
The specialist system—the humans responsible for maintaining an orderly market—simply broke. They couldn't keep up. Orders were piling up in the printers. Paper was everywhere. Some stocks didn't even open for trading because the imbalance was so huge. By noon, the panic was infectious. It wasn't just Wall Street anymore; it was Main Street. People were watching the ticker on the evening news and seeing their retirement funds evaporate in real-time.
The Fed Steps In
Alan Greenspan had only been the Chairman of the Federal Reserve for a few months. Talk about a "welcome to the job" moment. He had to act fast. The Fed issued a one-sentence statement basically saying they were ready to provide liquidity to support the economic and financial system.
It was a bluff, kind of. But it worked. They flooded the system with money, lowered interest rates, and told the big banks to keep lending to the brokerages. Without that intervention, the stock market October 19 1987 might have led to a second Great Depression. Instead, the market actually recovered relatively quickly. By 1989, the Dow had regained all its losses.
Why We Should Still Be Worried
You’d think we learned our lesson. We didn't.
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Sure, we invented "circuit breakers." Now, if the S&P 500 drops 7%, 13%, or 20%, the whole thing shuts down for a "timeout." It’s like a parent putting a toddler in the corner to stop a tantrum. These were directly inspired by the 1987 crash. They want to prevent that runaway computer selling that wrecked everything back then.
But here is the kicker: markets are faster now. Much faster. In 1987, "high speed" was a joke compared to the high-frequency trading (HFT) we have today. Algorithms now execute trades in microseconds. We’ve seen "flash crashes" since then—like the one in May 2010—where the market dropped nearly 1,000 points in minutes before bouncing back.
The ghost of the stock market October 19 1987 lives in those algorithms. We still have systemic risks where everyone is using the same math to make decisions. When the math says "sell," everyone sells at once.
Common Misconceptions About Black Monday
- It was caused by a recession: Nope. The economy was actually doing okay in '87. This was a "technical" crash, not a fundamental one.
- Small investors were wiped out: While many lost money, those who didn't panic and held on for two years made it all back. The ones who got destroyed were the ones trading on margin (borrowed money).
- It happened because of a trade war: There were tensions with Japan and concerns about the dollar, but that was just the background noise. The speed of the crash was purely a result of market structure.
Moving Forward: Protecting Your Money
If 1987 taught us anything, it’s that the market can disconnect from reality at any moment. You can't predict a Black Monday. You just can't. Anyone who tells you they can is selling something.
So, what do you actually do?
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First, stop thinking your "stop-loss" orders are a magic shield. In a real crash, prices "gap" down. Your order to sell at $100 might not get filled until the stock is at $80 because there were no trades in between.
Second, liquidity is king. During the stock market October 19 1987, the biggest problem wasn't just lower prices—it was the inability to trade at all. Keep enough cash on the sidelines so you aren't forced to sell when the world is on fire.
Actionable Steps for Today's Market
- Check your leverage. If you are trading on margin, a 20% drop doesn't just hurt; it ends your game. Lower your debt levels when volatility starts creeping up.
- Diversify beyond "The Computers." Index funds are great, but when everyone sells the S&P 500, they sell everything in it. Consider assets that don't move in lockstep with the NYSE, like physical commodities or specific international markets.
- Study market history. Read A Memorial Day Forecast or the Brady Commission Report. Understanding how the plumbing of the stock market works is more important than reading a company's balance sheet when a panic hits.
- Have a "Crash Plan." Decide now—while you are calm—what you will do if the market drops 10% in a day. Will you buy? Will you stand pat? Write it down. Emotional decisions are almost always bad decisions.
The 1987 crash was a wake-up call that the "plumbing" of Wall Street is just as important as the companies being traded. It proved that sometimes, the system itself is the biggest risk.
Next Steps to Secure Your Portfolio:
Review your current asset allocation to ensure you aren't over-exposed to high-frequency trading volatility. Specifically, look for "crowded trades" where everyone is piled into the same five or six tech stocks, as these are the most susceptible to the type of cascading sell-offs seen in 1987.