What is Black Monday?
Black Monday is a term used to refer to specific Mondays when a terrible or turbulent event has occurred. Although quite a broad term, people have often utilized ‘Black Monday’ to describe stock market crashes that have occurred on a Monday.
In the U.S., there have arguably been four Black Mondays involving a stock market crash. They occurred on the following dates:
- October 28, 1929
- October 19, 1987
- August 24, 2015
- March 9, 2020
In this article, the Zero Theft Movement will take a look at what led up to these four Black Mondays. We will also ask the question, are these stock market crashes solely due to natural market forces?
The Panama and Paradise Papers provide evidence on a money laundering network involving tax havens all over the globe. Megacorporations and the super-rich could be evading taxes by stashing some of their money overseas. Find out what your fellow citizens have found through the Zero Theft voting platform…
The Great Crash (Oct. 28, 1929)
The Wall Street Crash of 1929, or Great Crash, was the first economically related Black Mondays in U.S. history. According to the Financial Post, stocks plummeted 38 points (12.82%) when the exchange opened on Oct. 28, 1929. The stock market had seen an 11% decline the previous Thursday.
Causes of the Great Crash
The Great Crash came about due to post-WWI excess and optimism. That outlook, which helped foster indulgence and opulence of the “Roaring Twenties,” reflected in common investing practices. Many naively believed that the stock market would continue to rise in perpetuity. As they say, what goes up must come down.
Early on in 1929, the Federal Reserve (Fed) alerted investors of the dangers of excessive speculation, but no one heeded the Agency’s warnings. A small crash followed the Fed’s warnings. The speculative investing continued while numerous signs of the economic downturn flashed. Steel production and automobile sales had declined. Many consumers had amassed considerable debt due to easy access to credit.
Link to Great Depression?
The Great Crash did not single-handedly trigger the Great Depression; nevertheless it inched the economy closer to collapse. Commercial financial institutions had used deposits to invest in Wall Streets, causing citizens to ‘run on banks.’ This created a vicious cycle, where the banks were illiquid and thus could not return all the money wrapped up in investments. Businesses could not get loans, and people could not purchase homes.
Black Monday (1987)
On October 19, 1987, the Dow Jones Industrial Average (DJIA) dropped 22.61% and the S&P 500 plummeted 20.4%. This Black Monday saw the stock market experience its second-largest single-day percentage drop ever (as of July 2021).
Prior to the crash, the stock market had been in a bull market (steady growth) for five years. It reportedly jumped up 43% in 1987 alone, climaxing in August of that year. However, it suddenly started to collapse in early October, losing 15% in the two weeks before the Black Monday.
Unlike the Great Crash, few major warning signs emerged before the Black Monday in 1987. The stock market crash, now that we can look back, happened due to a combination of different causes—all of which resulted in the investor panic and the huge drop in the stock market.
Computer Trading
One proposed cause was the advent of computer trading (a.k.a. ‘Program trading’) and its widening of the trade deficit between the U.S. and other countries. Computer trading, in short, replaced human decision-making with complex algorithms. This type of trading, exclusively utilized by some Wall Street traders at the time, involves automatically generated orders based on price levels of benchmark indexes or specific stocks.
If you don’t have your algorithm calibrated right, then you’re asking for trouble.
The algorithms Wall Street used often produced strong positive feedback. This meant that instead of following the cardinal principle of buying low and selling high, the computers bought more when prices were rising and sold when prices were decreasing.
An announcement of a larger-than-expected trade deficit on October 14, 1987 created havoc. In response, then-Treasury Secretary James Baker tried to play tough with U.S. trading partners, specifically Germany. He reportedly said, “if you don’t lower rates, we’re going to lower the dollar and you’re going to have export problems.” Baker believed that a lower dollar would help reduce the shocking increase in the U.S. trade deficit.
DID YOU KNOW?
The Fed had to pump funds to stabilize the stock market. The events of the Black Monday of 1987 served as a precursor to the Savings and Loan crisis and early 90s recession.
Oil Disputes
Another proposed cause was the conflict within members of OPEC (Organization of Petroleum Exporting Countries). Investors feared that the conflict would dry up oil resources. Tom Therramus, a medical school professor and biologist, oddly enough investigated the matter, claiming: “During the mid-1980s Saudi Arabia grew increasingly frustrated with cheating on agreed oil production quotas by other members of OPEC. In 1986 the Saudis gave up honoring their own quota commitments to the cartel and the price of oil plummeted.” Again, OPEC’s infighting alone did not lead to the crash, but it likely contributed.
Antitakeover Provisions
A 1998 Securities and Exchange Commission (SEC) study concluded that antitakeover restrictions in a proposed House bill (to eliminate the tax deduction for loans used to finance corporate takeovers) majorly contributed to the markets decline leading up to the Black Monday in 1987. Traders had serious concerns of the impact that bill would have. Turns out, the stock prices that fell the most belonged to the companies that would be hurt most by the legislation.
Market Correction of 2015
On August 24, 2015, the S&P 500 opened at 1965.15. But in a matter of minutes, it plummeted to a low of 1867.01 (5% decline). Intraday trading allowed the index to nearly recover. Nevertheless, as the stock market neared closing, the S&P 500 dropped again. It closed at a 3.66% loss. For reference, the stock market typically fluctuates ∓1% in a day.
The Thursday and Friday before the Black Monday of 2015 saw strong selling, leading to huge dips in price. Investors had concerns over what would immediately follow. Asian markets greeted global investors with terrible news. The Chinese Shanghai Composite Index fell 8.5% that morning, leading to U.S. traders pulling their buy orders and selling en masse.
Sell orders swamped the market, and with few buy orders, the market continued its freefall.
The S&P 500 Index for June-December 2015
Source: Investopedia
When the U.S. market eventually opened, the Dow Jones Industrial Average (DJIA) immediately dropped 1,089 points to 15,370.33. Nevertheless, as the day progressed, traders stepped into the market, stabilizing prices. Markets made a quick recovery. The DJIA, for instance, closed just 533 points below the open. The 10% drop from its peak price over the past 52 weeks made the event a market correction, not a crash.
DID YOU KNOW?
Some believe that the Plunge Protection Team has the power to prevent market crashes. Is there a team stabilizing stock markets?
The Pandemic & the Repo Market
Source: Wikimedia Commons
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As most of you will already know, the COVID-19 pandemic set back the global economy considerably. Many could not work and, therefore, had little disposable income to spend on anything other than essentials. The lack of spending consequently hurts businesses and the economy as a whole.
The uncertainty and suffering all contributed to the huge dip in stock markets around the world. In barely four trading days, DIJA dropped 6,400 points (~26%). The Black Monday of 2020 (March 9, 2020) saw DIJA lose 2,013.76 points, making it one of the index’s worst single-day point drops in U.S. history. Prior to the crash, U.S. markets had been enjoying record highs. The Dow had just reached its highest peak ever of 29,551.42 on Feb. 12, 2020.
The repo market, in particular, suffered. In early March, CNN reported that the “rate to borrow 10-year Treasuries in the repo market plunged to minus-4%…mean[ing] investors are essentially paying to borrow 10-year bonds when normally it’s the other way around.” Wall Street allegedly attempted to capitalize on these rare prices by short-selling Treasury bonds.
Market Manipulation, a Case of the Black Mondays
Stock market crashes, including but not limited to Black Mondays, have sometimes occurred out of the blue. Some believe that major players on Wall Street attempt to execute market manipulation schemes through private exchanges such as dark pools.
For instance, the Securities and Exchange Commission (SEC) charged Barclays and Credit Suisse with dark pool violations. One charge was that “Barclays did not continuously police [its LX dark pool] for predatory trading using the tools it said it would, and it also did not run weekly surveillance reports.” The banks paid $150 million to settle the charges.
When you look at sudden market crashes in the past (e.g. Flash Crash of 2010), you might seriously wonder what might be going on behind the scenes. These massive fluctuations, whatever the reason, can often hurt many inexperienced Main Street investors. If these crashes occur due to illegal or unethical behavior, then we need to intervene.
But how?
The Zero Theft Movement has created an independent voting platform where you and your fellow citizens work together to calculate the most accurate estimate for the monetary costs of corruption in the United States.
The public investigates potential problem areas, and everyone votes on whether (1) theft is or isn’t occurring in a specific area of the economy, and (2) how much is being stolen or possibly saved. Through direct democracy, we can collectively decide where the problem areas exist and start working on addressing them systematically.
Only through hard evidence can we prove where the rigged parts of the economy exist and force Congress to hold all the bad actors accountable.
Standard Disclaimer
The Zero Theft Movement does not have any interest in partisan politics/competition or attacking/defending one side. We seek to eradicate theft from the U.S economy. In other words, how the wealthy and powerful rig the system to steal money from us, the everyday citizen. We need to collectively fight against crony capitalism in order for us to all profit from an ethical economy.
Terms like ‘steal,’ ‘theft,’ and ‘crime’ will frequently appear throughout the article. Zero Theft will NOT adhere strictly to the legal definitions of these terms (since congress sells out). We have broadly and openly defined terms like ‘steal’ and ‘theft’ to refer to the rigged economy and other debated unethical acts that can cause citizens to lose out on money they deserve to keep.