The Cruelest Month
October is traditionally the month when Wall Street has been at its worst. Here’s a look at four of the most memorable market drops before Monday:
OCT. 28-29, 1929
* What happened: The economy was booming up until the Great Crash, which really was several crashes. But that robust economy existed only for the wealthiest Americans, who invested heavily in luxuryitems and stocks and promulgated the image of the 1920s as an era of “easy money.” In fact, Americas farms were already in a sort of depression, mortgage debt was soaring, and wages and consumption were stagnant. In short, the stock market was outracing the general economy.
* The Fall: The Dow fell 12.8 % on Oct. 28, 11.7% on Oct. 29, and 9.9% on Nov. 6, in panic selling partly engendered by the practice of buying stocks on credit.
* What happened: Everything seemed to go wrong at once: Inflation was soaring, as were interest rates. In October, the Arab oil embargo that followed the Yom Kippur war a conflict between Israel and Egypt and Syria sent gasoline prices through the roof.
* The fall: The Dow dropped 40% between October 1973 and October 1974. Worst hit were the “Nifty Fifty” favored growth stocks like Xerox that some investors had come to see as immune to ordinary measures of stock value.
OCT. 19, 1987
* What happened: Black Monday came amid a seemingly strong economy. But fears of an imminent recession and rising interest rates sparked the Oct. 19 market decline.
* The fall: The biggest one-day percentage drop in the Dow 22.6%, or 508.32 points. The market was already jittery, and that worsened when U.S. Treasury Secretary James A. Baker III threatened to allow a further weakening of the dollar in response to higher German interest rates. New Federal Reserve Chairman Alan Greenspan held off a bigger decline by making clear the Fed stood ready to pump money into the economy. Stocks began recovering the next day, and the Dow ended 1987 about where it began.
* What happened: Another oil crisis of sorts was behind this market drop. Oil prices shot up starting in August 1990, when Saddam Hussein invaded Kuwait. The price of a barrel of crude oil broke $40 for the first time ever.
* The fall: The Dow dropped about 19% from July through October. Hussein wasn’t solely to blame for Wall Street’s woes; Congress and then-President Bush bickered over how to cut $500 million from the budget deficit, which kept interest rates high. But Hussein’s imminent defeat was all it took to lift the market. On Jan. 17, the day after the first successful air attacks on Iraq, the Dow responded with a 114-point (4.5%) rise, its second largest to that point.