On this day in 1987 (that's 30 years ago, if you are burdened with a graduate degree), the New York Stock Exchange had one of its most dramatic trading days in its 225-year history.
It 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 were nothing other than spectacular on Wall Street. From New Year's Day to shortly before Labor Day, the Dow rallied a rather stunning 43 percent. Fear seemed to disappear. Junior traders laughed at their cautious elders and told each other to "buy strength" rather than sell it, as each rally leg was soon followed by another.
One thing that also 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 hitting 2,722. Interest rates had begun to creep 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. 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.