Wednesday, December 15, 2010

On Black Monday (1987)

On Black Monday (1987): On Monday, October 19, 1987, stock markets around the world declined by massive margins. The Dow Jones Industrial Average (DJIA) in New York, which often comprises the 30 largest publicly traded companies in the United States, shed over 20% of its value. It was the biggest single day (percentage) drop in the index's nearly 100-year history. And since the DJIA generally signifies a bellwether for the nation's financial markets, broad-based losses continued to widen across the country. Although the systematic declines had originally started in Asia, they spread across Europe and into the Americas. This October crash became known as "Black Monday," as financial analysts began to digest the extent of the damages. Lawmakers sought answers through congressional hearings. The primary culprit appeared to be a mix of investor confidence and electronic trading. Interest rates remained high during most of the 1980s to "break the back of inflation." And with the advent of computerized trading programs, investors began to trade stocks on a whim. Therefore, trader psychology became an essential component in determining the market's overall direction.

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