Lesson from the 1987 stock market crash: Never doubt American resiliency

Alan Valdes
Alan Valdes

Thirty years ago … Could it happen again?

By Alan Valdes, director of floor operations at Silverbear Capital

What a difference a mere 30 years makes. In 1987, about 3,000 traders and support staff on the floor of the NYSE worried, not only about the economy as a whole, but also about whether their careers were about to end.

It had been a rough week for stocks and traders with world events and talk of war weighing on markets around the world. On October 15, the market fell 58 points. Then, after Iran shot off two missiles in the next two days, hitting two American owned supertankers, markets started to disintegrate. On Friday, October 16, the Dow (^DJIDIA) fell 108.35 points, a record up to that point. Traders went home that Friday a little concerned, but most felt that Monday would bring buyers picking up great prices on stocks.

“Black Monday,” as it came to be known, was, and still is, the worst day for stocks on record. By the time traders entered the trading floor on that day at 9:00 a.m. (EST), they knew it was going to be a bad day and any hope of buyers stepping in to support Friday’s decline was fast fading. Markets, starting in Hong Kong, then spreading to West Europe before hitting the U.S., all fell apart. By the end of the trading day, the market had fallen an incredible 508 points.

But the resiliency of America is never to be doubted. Toward the end of 1987 and all through 1988 growth returned to the U.S. equity markets. Finally, by the end of 1989, markets were back to their pre-crash levels.

“Could it happen again?” Of course, anything is possible. The world is still a volatile place. However, markets are much stronger than in 1987. With the world awash in cash ($129 trillion in liquid assets around the world), it would not take long before savvy investors stepped in to buy again.