Black Monday: A Reminder of Market Volatility
On Monday, August 5th, the stock market witnessed unexpected sharp falls, with Japan’s Nikkei 225 index plummeting by 12.4%. This triggered fears about the US economy, leading to the term “Black Monday” being evoked.
Origins of Black Monday
The infamous Black Monday occurred on October 19, 1987, when the New York Stock Exchange experienced its largest ever percentage drop. The Dow Jones Industrial Average plunged by a staggering 22.6%, the biggest daily percentage loss in its history. This event overshadowed even the 1929 stock market crash before the Great Depression.
Causes of Black Monday
The causes of this unprecedented crash are attributed to several factors:
Escalation of hostilities in the Persian Gulf
Fear of rising interest rates
A five-year bull market without significant corrections
The rise of computerised trading, which amplified panic among human traders
Aftermath and Impact
After the devastating fall of Black Monday, circuit breakers were implemented to halt trading when stocks decline too rapidly, providing a momentary pause to prevent further panic. Despite the immense loss, the market eventually recovered, and the following years witnessed the longest and strongest bull market in US history.
Black Monday: A Reminder
Black Monday serves as a stark reminder of the inherent volatility of the stock market and the potential for sudden and dramatic declines. It highlights the importance of risk management and diversification in investment strategies.