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- President Trump’s tariff announcements have unsettled the financial markets.
- This instability recalls past crises, like the Black Monday 1987 stock market crash.
- Black Monday saw a 20.5% S&P 500 drop, the most drastic in financial history.
President Donald Trump’s tariff announcements have shaken up financial markets in recent weeks.
For some, this economic instability has brought to mind past financial crises, like the Great Recession, the Great Depression, and the October 19, 1987, crisis known as Black Monday.
On Black Monday, the S&P 500 saw a historic 20.5% downturn, and the Dow Jones plummeted by 22.6%. This was the biggest plunge the markets had taken since October 28, 1929, the start of the Great Depression, which lasted until 1932.
These 10 pictures show how Black Monday impacted markets worldwide and explain the factors that contributed to the financial crash.
The crash came at the end of an extended bear market.
Following a few years of economic strength, stock prices climbed up 44% in the first half of 1987, creating an asset bubble that began imploding on October 16, when reports of a growing trade deficit started spreading.
By the time the markets closed on Friday, October 16, 1987, economic uncertainty signaled what would come at the beginning of the week as the Dow Jones began to decline, seeing a 4.6% downturn by the end of the day.
That Saturday, Treasury Secretary James Baker’s proposal to devalue the US dollar to minimize the growing trade deficit escalated anxieties, heightening financial panic.
Automatic transactions heightened the crash as investors transitioned to computerized trading.
By 1987, investors had begun using computerized trading programs designed to send sell or buy orders whenever stock prices behaved a certain way.
The Black Monday crash showed how these early technologies affected the market during a drastic downturn.
Computerized portfolio insurance programs contributed to the free fall.
New automated portfolio insurance tools used software to automatically sell stocks whenever they dropped below a certain price. These programs automatically sold a large number of stocks, overwhelming the market and further contributing to the accelerated financial downturn.
Widespread panic led to chaotic markets.
As news of the crash spread through Wall Street and beyond, investors rushed to sell in frantic efforts to save their funds. The panic only made more and more traders sell their stocks, pushing the markets further down.
The effects of the crash were felt across the globe, with Asian markets getting an early hit.
Hours before Wall Street even opened, stock markets in Asia felt the shockwaves of the financial downturn, which quickly became a global concern.
London saw a significant downturn, with the Financial Times Stock Exchange 100 index dropping over 10%, as reported by The Guardian. Meanwhile, in Hong Kong, the panic caused the stock exchange to close for days.
The Federal Reserve aimed to reduce the financial disaster by lowering interest rates.
In response to the market panic, the Federal Reserve lowered interest rates by half a percentage point. Chairman Alan Greenspan also released a public statement declaring the institution’s commitment to providing liquidity.
These actions helped slow the market downturn and prevent the panic from accelerating further.
Average people also felt the effects of the market plunge in their wallets.
The sudden market crash put people’s retirement and savings funds at risk.
As people panicked, media outlets rushed to spread information about the markets.
As the global markets plunged, newscasts turned their focus to the economy. However, the technologies mass media relied on at the time — mostly newspapers and TV news — failed to update consumers quickly enough about the market movements as they progressed by the minute, adding to the existing panic and heightening the misinformation experienced in and outside Wall Street.
The crash led to a wave of market reforms to prevent future panics.
Following the crash, the US Securities and Exchange Commission began asking stock exchanges to employ circuit breakers to halt market activity during extreme volatility. This aimed to both prevent panic from spreading and incentivize traders to think through their decisions.
The circuit breakers have only been used a handful of times since their inception, including during the early days of the COVID-19 pandemic and, most recently, following Trump’s tariff announcements.
Black Monday remains the worst one-day percentage drop in the US stock market’s history.
On Black Monday, the New York Stock Exchange lost over $500 billion in market value, according to Goldman Sachs.
However, the markets were able to begin recovering in the following weeks, and by 1988, the markets had surpassed their pre-crash record high.
Although short-lived, the financial crash helped reform the stock exchanges and put mechanisms in place to prevent a drastic downturn and widespread panic from impacting US and global markets.
