Thursday, October 19th was the 30th anniversary of Black Monday. Black Monday is considered one of the worst performance days on Wall Street. The Dow Jones Industrial Average (DJIA), also called the Dow, plunged in value by 508 points or 22.6%. At the time this was the biggest stock market decline Wall Street had ever seen.
The Dow generally declines when investors sell stocks. Although investors were broadly concerned about stock prices being too high and various economic issues, there wasn’t one specific event on Black Monday that caused investors to sell. However, the selling created panic and more investors started selling regardless of value, which caused the Dow to plunge in value very quickly. Some people blame this quick decline on program trading, which is a type of trading where a computer buys and sells stocks, usually at pre-determined prices. Program trading speeds up the trading process, which means large quantities of stock can be bought or sold very quickly.
Since Black Monday the stock exchanges have put in place safeguards to prevent another market free fall. One of these safeguards is called a circuit breaker. A circuit breaker halts stock trading when a market index falls a certain percentage within a specific period of time. This prevents panic selling and gives investors time to evaluate the situation.
If you want to learn more, check out our “What is the Dow Jones Industrial Average (DJIA)?” video.