On the 27th anniversary of Black Monday on Oct. 19, 1987, market veteran Art Cashin, now the director of floor operations at UBS, recalls in vivid detail how the event transpired:
On this day in 1987 (that's 27 years ago, if you are burdened with a graduate degree), the New York Stock Exchange had one of the most dramatic trading days of its 220-year history.
The Big Board suffered its largest single day percentage loss (22 percent) and its largest one-day point loss up until that day (508 points). No one who was on the floor that day will ever forget it. While it was an unforgettable single day, there were months of events that went into its making.
The first two-thirds of 1987 on Wall Street was nothing short of spectacular. From New Year's Day to shortly before Labor Day, the Dow rallied a rather stunning 43 percent. Fear seemed to disappear, and junior traders laughed at their cautious elders. The brash youngsters told each other to "buy strength" rather than sell it, as each buying wave was soon followed by another.
One thing that helped banish fear was a new process called "portfolio insurance." It involved use of the newly expanded S&P futures. Somewhat counterintuitively, it involved selling when prices turned down.
The rally topped out about Aug. 25, with the Dow Jones Industrial Average hitting 2,722 (less than a tenth of its current numerical value). Interest rates had begun creeping up amid concerns of early signs of inflation. Treasury Secretary James Baker began a rather open debate with the Germans on the relationship of the dollar and the Deutsche mark (which has now been swallowed up by Europe's single currency).
Soon the weakness in the market was turning into a visible correction. By the middle of October, the Dow fell to break an uptrend line that had protected it for over 1,000 points. The flurry of takeovers and leveraged buyouts that had flourished all year began to dry up.
On Wednesday, Oct. 14, there were widely discussed rumors of a new punitive tax on takeover profits. Selling turned a bit ugly and the Dow fell 96 points by the close (a record point drop at the time). The next day, there was no bounce and the Dow fell another 58 points.
Friday the 16th was an option expiration day. There was a very bad storm in London and that market closed, which forced more people to seek liquidity in New York. Stocks faced a steady wave of selling. As the close neared, rumors spread that First Lady Nancy Reagan, the president's right hand, might be admitted to the hospital with cancer. The selling intensified and the Dow closed down 108 points, on the low and a new record point drop.
The weekend was a rumormonger's delight. Mrs. Reagan was in fact admitted to the hospital. Japan was considering a confiscatory 96 percent tax on speculative real estate transactions. Germany proposed a change in taxes on some interest rates, which would make U.S. Treasurys unattractive to Germans. Congressman Richard Gephardt was talking about a trade bill that would freeze imports. Secretary Baker went on a Sunday talk show and openly challenged the Germans on their currency policy. There were even rumors of U.S. planes engaging Iran.