After five days of intensifying declines in the stock market, selling pressure hit a peak on October 19, 1987, also known as Black Monday. Steep price declines were created as a result of significant selling; total trading volume was so large that the computerized trading systems could not process them. Some orders were left unfilled for over an hour, and these order imbalances prevented investors from discovering the true price of stocks.
Heightened hostilities in the Persian Gulf, a fear of higher interest rates, a five-year bull market without a significant correction, and the introduction of computerized trading have all been named as potential causes of the crash. There were also deeper economic factors that may have been to blame.
Under the Plaza Accord of 1985, the Federal Reserve made an agreement with the central banks of the G-5 nations—France, Germany, the United Kingdom, and Japan—to depreciate the U.S. dollar in international currency markets in order to control mounting U.S. trade deficits. By early 1987, that goal had been achieved; the gap between U.S. exports and imports had flattened out, which helped U.S. exporters and contributed to the U.S. stock market boom of the mid-1980s.
In the five years preceding October 1987, the DJIA more than tripled in value, creating excessive valuation levels and an overvalued stock market. The Plaza Accord was replaced by the Louvre Accord in February 1987. Under the Louvre Accord, the G-5 nations agreed to stabilize exchange rates around this new balance of trade.
In the U.S., the Federal Reserve tightened monetary policy under the new Louvre Accord to halt the downward pressure on the dollar in the time period leading up to the crash. As a result of this contractionary monetary policy, growth in the U.S. money supply plummeted from January to September, interest rates rose, and stock prices began to fall by the end of the third quarter of 1987.