Understanding Black Monday and Stock Market Crashes

What Is Black Monday?

Black Monday refers to October 19, 1987, when the Dow Jones Industrial Average plummeted 22.6%—the largest single-day percentage drop in history. Global markets followed, with losses exceeding $1 trillion. This event marked a pivotal moment in financial history, highlighting vulnerabilities in automated trading and investor psychology.

Causes of the 1987 Crash

The crash stemmed from a perfect storm: overvalued stocks after years of bull runs, program trading amplifying sell-offs, portfolio insurance failures, and rising interest rates. Margin debt and international tensions exacerbated panic, creating a feedback loop of forced liquidations.

The Broader Phenomenon of Stock Market Crashes

A stock market crash is a sudden, sharp decline in asset values, often 10%+ in a day or week, leading to economic fallout. Notable examples include the 1929 Wall Street Crash (triggering the Great Depression) and 2008’s financial crisis (housing bubble burst). Crashes erode wealth, spike unemployment, and prompt recessions, but also catalyze reforms like circuit breakers.

Lessons and Modern Relevance

Black Monday introduced trading halts and better risk management. In 2025, with DeFi’s $150B+ TVL, crashes remind investors of diversification and vigilance against leverage.

In summary, Black Monday exemplifies how interconnected markets can unravel, teaching enduring lessons on volatility.