This week marks the thirtieth anniversary of the biggest one-day percentage drop in the history of the Dow Jones Industrial Average*: 22.6%.

At the time the 508 point drop that occurred on October 19, 1987 was also the largest ever single-day points loss on the Dow.

It was a stunning defeat in the markets and, as would be expected, it shook the financial world to its very core. And not just on Wall Street – this was one of those very rare ‘shots heard round the world’. No one anywhere knew what to expect.

Would the markets simply bounce back and show October 19 to be an anomaly? Would the event become infamous, but ultimately unimportant?

Some people thought (or at least hoped) so, mostly because a lot of the selling had been automatic: trading stocks by computer algorithms was still relatively new. So, it was true that a lot of the selling was simply caused by selling: falling prices created selling which created falling prices. It got extremely ugly very fast.

Desperate for optimism, traders and investors wanted to think that because millions of shares had been traded by these computer algorithms — and not by skilled humans – the trading was induced by price alone rather than price relating to value. If that were true, value would certainly come roaring back…they claimed.

While some modicum of comfort might have been found in believing a recovery bounce would follow, there was countervailing data to suggest there quite possibly would be no bounce. The key fact of this was that in the two weeks leading up to Black Monday, the Dow had already slipped 15%.  In fact, the Dow had dropped around 200 points on the Friday: October 16th. If you add the losses from Friday to those on the following Monday, the drop was greater than 700 points.

So, what happened? Mass bankruptcies, collapsing banks and recession all seemed legitimate possibilities. Surprisingly; none of these.

A lot of the desperately manufactured optimism brought buyers of shares back to the trading floor. Tuesday October 20th and Thursday October 22nd both saw record setting gains. By the end of the year the Dow was higher than it had been on January 1st.


Market Minute 10/20/2017 – Could Black Monday Happen Again?

That does seem to be the question in many of the financial blogs this week. It’s true that they mostly just want to get your attention, so let’s think about it. 

1987: Inflation near the highest it’s ever been. Bond markets were doing weird things.  Corporate profits – stinking! Market volatility – extremely high as measured by the VIX*! No ‘circuit breakers’ in existence in US markets to slow the fall of stocks.

2017: Inflation benign, extremely low from a historical standpoint. Bond markets benign – nothing much happening there. Corporate profits in the 20%+ range – some of the highest profit gains in a long, long time. Market volatility – almost nonexistent. We haven’t seen a 2% move in the markets in a day’s time since the beginning of the year – which makes for a pretty calm market. And as a result of the 1987 drop, US markets have circuit breakers which can not only halt trading on specific issues, but can also fully suspend trading on entire markets if there’s a large drop, and stop them again if there’s another large drop. Statistically it’s probably (I haven’t actually done the math) impossible to have a 20% drop in US markets in a one-day timeframe.

What’s important about this? Knowing that the US markets (and for that matter, global markets) are quite healthy today doesn’t mean we can’t see a pullback. Actually, a bit of a pullback would, in my opinion, be a good thing. There is still a large amount of cash sitting on the sidelines waiting for a pullback – but then they’d most likely jump into the markets, also.  And that would likely cure the pullback and push markets higher. 

So, relax and enjoy the ride and your profits this year. Ideal years don’t come along often. We feel pretty comfortable however, knowing markets are healthy, and likely to continue their upward trajectory. Have a good weekend. 


Ronald P. Denk, CFP®
Investment Advisor
Denk Strategic Wealth Partners
10000 N. 31st Avenue, Suite C-262
Phoenix, AZ 85051

Phone (602) 252-8700
Fax (602) 252-8701
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*The indices are representative of domestic markets and include the average performance of groups of widely held common stocks. Individuals cannot invest directly in any index and unlike investments, indices do not incur management fees, charges, or expenses, therefore specific index returns will be higher. Past performance is not indicative of future results.