The stock market crash of 1987 was a rapid and severe downturn in U.S. stock prices that occurred over several days in late October 1987. While the crash originated in the U.S., the event impacted every other major stock market in the world.
In the five years leading up to the 1987 crash, the Dow Jones Industrial Average (DJIA) had more than tripled. On October 19, 1987—known as Black Monday—the DJIA fell by 508 points, or by 22.6%. Up to this point in history, this was the largest percentage drop in one day. The crash sparked fears of extended economic instability around the world.1
After this crash, the Federal Reserve and stock exchanges intervened by installing mechanisms called “circuit breakers,” designed to slow down future plunges and stop trading when stocks fall too far or too fast.2
KEY TAKEAWAYS
The stock market crash of 1987 was a steep decline in U.S. stock prices over a few days in October of 1987; in addition to impacting the U.S. stock market, its repercussions were also observed in other major world stock markets.
It’s speculated that the roots of the stock market crash of 1987 lay in a series of monetary and foreign trade agreements– specifically the Plaza Accord and the Louvre Accord–that were implemented in order to depreciate the U.S. dollar and adjust trade deficits.
It’s also speculated that the computer program-driven trading models on Wall Street contributed to both the rise in stock prices to overvalued levels prior to the crash and the steepness of the decline.