How the ’87 Market Plunge Unfolded
WEDNESDAY, Oct. 14: The Dow Jones industrial average, which had soared from 1,895 on Jan. 1 to a peak of 2,722 in August as the economy boomed, had been hovering in the 2,500-2,600 range since early September. But bond yields were rising on inflation worries and because of rising West German rates and a falling dollar. Also, the nation’s huge trade deficit was viewed as potentially ruinous to the economy. On this day, after the government announced that the August trade deficit was higher than expected, long-term Treasury bond yields jumped over 10% for the first time in almost two years, and the Dow plummeted a then-record 95.46 points to 2,412.70.
THURSDAY, Oct. 15: The Dow lost 57.61 points to 2,355.09, continuing its downward spiral, after banks raised their prime lending rates to 9.75% from 9.25%, the third increase in five weeks. Investors began to fear that the government would allow the dollar to plunge further to ease the trade imbalance. Treasury Secretary James A. Baker III, noting the robust economy, called stocks’ reaction to higher rates and a weak dollar “overblown,” insisting that “conditions do not warrant ‘Apocalypse Now’ worries.”
FRIDAY, Oct. 16: The Dow plunged 108.35 points to 2,246.74 on record NYSE volume of 338.48 million shares, as increasingly panicked investors rushed to lock in some of their huge 1987 paper profits on stocks. Takeover stocks dived as investors feared that rising interest rates would halt merger-mania, and as congressional Democrats introduced a tax proposal with anti-takeover overtones. Investors also expressed dismay with the reluctance of the Reagan Administration and Congress to work out federal-deficit cuts. Much-criticized computerized program trading by big investors was a major force in the decline.
MONDAY, Oct. 19: On West German TV over the weekend, Baker had publicly criticized his German counterparts for pushing interest rates up--a sign to investors worldwide that Western allies had no coordinated plan to deal with sinking financial markets. Tokyo and London stock markets plunged at the opening Monday, so that by the time New York markets opened a full-scale global panic was underway. With computerized trading pushing wave upon wave of stocks into the market, the Dow cascaded lower by the minute. By the close the Dow had lost an astounding 508.00 points, or nearly 23%, to close at 1,738.74. NYSE volume reached 604 million shares. The Dow’s loss was double the percentage drop on Oct. 28, 1929--the crash that preceded the Great Depression. As shell-shocked investors attempted to make sense of the debacle, President Reagan told reporters, “I think everyone is a little puzzled. . . . There is nothing wrong with the economy.” He would later be proved correct.
TUESDAY, Oct. 20: Shortly before the market opened in New York, Federal Reserve Chairman Greenspan publicly pledged all needed liquidity to support the financial system. The pledge buoyed still-panicked investors, and the Dow rallied 200 points in the first hour. It would soon fall back, however, and threaten a new meltdown. But in mysterious trading at midday, buying emerged at a crucial moment to spark a renewed rally, and the Dow finished the day with its largest point gain ever, up 102.27 points to 1,841.01 on NYSE volume of 608.1 million shares--still the record. Interest rates worldwide began to fall, and Western allies issued a new pledge to work together on exchange-rate, interest-rate and economic growth policies.
WEDNESDAY, Oct. 21: The Dow gained another 186.84 points to 2,027.85 as world markets also recovered. Computerized program trading was all but banned temporarily. Reagan dispatched senior aides to Congress to begin work on a deficit-reduction plan. Though the stock market would be wobbly for weeks afterward--including another 156.83-point loss on Monday, Oct. 26--a continuing decline in world interest rates, uninterrupted economic growth and the simple exhaustion of most sellers removed the crisis aura, and allowed stocks to stabilize.
