The Stock Market Crash of or " Black Monday " was the largest one-day market crash in history. The Dow lost These years were an extension of an extremely powerful bull market that had started in the summer of This bull market had been fueled by low interest rates, hostile takeovers, leveraged buyouts and merger mania.

stock market heading for black monday crash of 1987

Many companies were scrambling to raise capital to buy each other out. The business philosophy of the time was that companies could grow exponentially simply by constantly acquiring other companies. In a leveraged buyout, a company would raise a massive amount of capital by selling junk bonds to the public.

stock market heading for black monday crash of 1987

Junk bonds are bonds that pay high interest rates due to their high risk of default. The capital raised through selling junk bonds would go toward the purchase of the desired company. IPOs were also becoming a commonplace driver of market excitement.

An IPO or Initial Public Offering is when a company issues stock to the public for the first time. People started to view the personal computer as a revolutionary tool that would change our way of life, while creating wonderful business opportunities.

The investing public eventually became caught up in a contagious euphoria that was similar to that of any other historic bubble and market crash. During this growth boom, the SEC found it increasingly difficult to prevent shady IPOs and conglomerates from proliferating. In early , the SEC conducted numerous investigations of illegal insider trading, which created a wary stance among many investors.

Are Stock Markets Setting Up For A New 'Black Monday'? | Zero Hedge

At the same time, inflation and overheating became a concern due to the high rate of economic and credit growth. Many institutional trading firms began to utilize portfolio insurance to protect against further stock dips. Portfolio insurance is a hedging strategy that uses stock index futures to cushion equity portfolios against broad stock market declines.

As interest rates rose, many institutional money managers scrambled to hedge their portfolios at the same time. On October 19th , the stock index futures market was flooded with billions of dollars worth of sell orders within minutes, causing both the futures and stock markets to crash. In addition, many common stock investors attempted to sell simultaneously, which completely overwhelmed the stock market. Markets in nearly every country around the world plunged in a similar fashion.

When individual investors heard that a massive stock market crash was occurring, they rushed to call their brokers to sell their stocks. This was unsuccessful because each broker had many clients. Many people lost millions of dollars instantly. A few brokers were killed despite the fact that they had no control over the market action.

After the October 19th plunge, many futures and stock exchanges were shut down for a day. Shortly after the crash, the Federal Reserve decided to intervene to prevent an even greater crisis. Short-term interest rates were instantly lowered to prevent a recession and banking crisis. Remarkably, the markets recovered fairly quickly from the worst one day stock market crash. Unlike after the stock market crash of , the stock market quickly embarked on a bull run after the October crash.

The post-crash bull market was driven by companies that bought back their stocks that that the considered to be undervalued after the market meltdown. Another reason why stocks continued to rise after the crash was that the Japanese economy and stock market was embarking on its own massive bull market, which helped to pull the U. After the stock market crash, as system of circuit breakers were put into place to electronically halt stocks from trading if they plummet too quickly.

What Caused the Stock Market Crash of ?

A Brief History of the Stock Market Crash PDF. Remembering the Stock Market Crash of Powered by Facebook Comments. The Bubble Bubble is produced by economic analyst and Forbes contributor Jesse Colombo.

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stock market heading for black monday crash of 1987

Black Monday — the Stock Market Crash of

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