On Monday, Oct. 19, 1987, the Dow Jones industrial average plummeted by 508 points, to 1739. The 22.6 percent decline was the largest one-day drop in the stock market in the nation’s history — not counting Dec. 12, 1914, when the New York Stock Exchange reopened after being closed for four months during World War I.
The stock exchange has produced an interesting fact sheet [pdf] comparing the stock market then and now. A look through The Times’s coverage the following day — Oct. 20, 1987 — reveals the panic and alarm that swept through the city and the nation.
“The biggest threat may be the spread of worry and fear,” The Times warned in a front-page analysis. President Reagan watched on with concern and but refused to consider halting the trading. Political observers wondered aloud how the plunge would affect the 1988 election. New York City was swept by alarm over the securities industry and the impact of the plunge on local employment. Corporate executives looked on in shock.
Alison Leigh Cowan, now a Metro Section reporter for The Times, described the scene and mood on Wall Street this way:
The genuine fear and panic rippling through the markets was reflected in the agitation of strangers stopping each other in the street to inquire about the market, in the stony-faced traders whose sense of humor had abandoned them and in the exhaustion of stock exchange employees struggling to maintain orderly trading.
For many individuals, the stock plunge was disastrous. ”I’m in a state of complete ruin,” Richard Barris, an actor and investor who had spent most of the morning trying, in vain, to reach his broker to place a sell order, told The Times. ”In my wildest dreams, I would not have imagined this.”
By the end of October, stock markets in Asia, Europe and Australia had plunged by double-digit percentage points. Many markets restricted trading because the rush of orders coming in had overwhelmed computer systems. The Federal Reserve and other central banks pumped money into the system to prevent a further downturn.
The causes of the crash remain the subject of debate. A long bull market, fueled by a wave of public offerings and mergers, had fueled an investor frenzy, but earlier in 1987, the Securities and Exchange Commission had opened several investigations into insider trading, damping the market’s confidence.
Unlike the 1929 crash, the 1987 crash did not lead to a Great Depression. In fact, it would take almost three more years before the economy retracted, during the recession of 1990-91. In retrospect, many experts say the 1987 crash represented, ultimately, a great buying opportunity. A new bull market began before the end of the year.
Could a crash happen again?
“The 1987 crash was about overvalued stocks and rising interest rates, and it didn’t seriously hamper economic growth,” The Wall Street Journal wrote this week in an overview of the 1987 crash. “The troubles this year include the threat to consumer spending from the housing slump and credit problems.”
A one-day plunge seems less of a concern today, it seems, than a prolonged downturn in the markets.
