Friday marks the 25th anniversary of Black Monday, the biggest single-day drop in the stock market's history.
On that fateful day, the Dow Industrials plunged 22.6 percent (equivalent to 508 points) as a record 604 million shares changed hands at the New York Stock Exchange — three-times the typical daily volume that year. Declining volume outpaced advancing volume by 50 to 1 that day.
At the end of the day, traders left shell-shocked after witnessing the loss of $503 billion in market capitalization, a staggering amount at that time. Read and watch traders reflect on their vivid memories from the October 1987 crash on Bob Pisani's Trader Talk blog.
The Black Monday selloff was just the second triple-digit decline ever for the Dow and came less than two months after the index closed at an all-time high of 2,722 on Aug. 25, 1987.
At the time of that record high, the Dow had been up as much as 43 percent for the year. By the Oct. 19, 1987, close, the Dow had plunged 36 percent from its historic high setback in August.
While the proliferation of program trading is often cited as a factor in the acceleration of the losses on Black Monday, concerns over monetary policy and currency fluctuations also put a cloud over not only U.S. stocks, but also equity markets around the world during the entire month. In fact, many global markets plunged even more dramatically than the S&P 500 did in October 1987.
Stocks initially remained volatile in the days and weeks following the Black Monday crash, but they gradually gained traction and climbed higher in the months ahead. After just 15 months, the Dow recovered its Black Monday losses for the first time on Jan. 24, 1989. However, a full two years passed before the Dow reached its first new high since the 1987 crash. On Aug. 24, 1989, the Blue Chip index closed at 2,735, finally surpassing its previous high from Aug. 25, 1987.
In comparison, after Lehman Brothers filed for bankruptcy during the height of the 2008 Financial Crisis, it took more than two years for the Dow to recover to the levels it was at prior to the demise of the investment bank. The index also remains more than 4 percent below its all-time closing high that it hit five years ago this month.
Despite all of the turmoil during the Financial Crisis four years ago, the individual drops in 2008 pale in comparison to the unprecedented and staggering 22.6 percent plunge on Black Monday.
The biggest decline the Dow saw in 2008 was another significant October drop, on a day that more than $1 trillion in market cap was lost. However, that 7.9 percent decline for the Dow on Oct. 15, 2008, barely ranks in the top 10 biggest drops. As it stands, it is the ninth largest percentage decline the index's history.
What would be the equivalent drop today to the Dow's 508-point plunge on Black Monday? The index would have to drop more than 3,000 points today to match the 22.6 percent decline on Oct. 19, 1987.
While a drop of that magnitude is theoretically still possible today, in reality, the feat would be much more difficult to pull off due to circuit breaker rules that were initially developed in response to the 1987 crash.
Circuit breakers, which halt trading for a pre-determined period of time when the Dow experiences a severe selloff, have only been triggered twice since they were implemented (two times on Oct. 27, 1997). At that time, however, circuit breakers were based on 350- and 550-point declines in the Dow.
Since then, the guidelines were refined in 1998, only putting circuit breakers in effect on 10-percent, 20-percent and 30-percent drops in the Dow. The rules continue to evolve.
In response to the events of the May 2010 "Flash Crash," the Securities and Exchanged Commission recently passed new regulations that would base circuit breaker thresholds on 7-percent, 13-percent and 20-percent declines in the S&P 500. Those changes shorten the duration of the trading halts, and create trading limits for individual stocks under certain circumstances. The new rules will be tried out in a one-year pilot program that begins on Feb. 4.
-By Robert Hum, CNBC Markets Producer