This article ran on the front page of the Chicago Tribune on Tuesday, Oct. 1987, a day after the stock market suffered its worst day ever.
The stock market collapsed in a selling frenzy Monday that rocked Wall Street and sent tremors through financial markets across the country and around the world.
By the end of a tortured day of trading, the market’s value had declined by more than a half-trillion dollars as the Dow Jones industrial average plummeted 508 points, closing at 1738.74. Trading topped 604 million shares on the New York Stock Exchange.
The decline represented a drop in value of the Dow of nearly 23 percent, far greater than the one-day loss of 12.8 percent recorded in the Great Crash of 1929, viewed by investors as the darkest day in 20th Century market history.
The financial and psychological reverberations on investors and borrowers in the United States and around the world will be felt for months.
The Hong Kong stock market Tuesday suspended trading for the rest of the week, after the market’s key index dropped 11 percent Monday. Frenzied selling also hit exchanges Monday in London, Frankfurt, Amsterdam, Mexico City and other financial centers.
The trend continued with ferocity Tuesday as share prices plunged when the Japanese and Australian stock markets opened. In Sydney, the first hour of trading Tuesday cut the value of Australian stocks by 20 percent, or the equivalent of $36 billion in U.S. currency.
The Tokyo Stock Exchange, the world’s largest in terms of total value of shares traded, was flooded with sell orders. By midafternoon Tuesday the Nikkei average of 225 stocks had fallen 13 percent, posting a record decline of 3,395 points, to 22,350. The previous largest one-day decline was 831.32 points, set April 27. Traders forecast some recovery by the time the market closed, but experts said the day would end with unprecedented losses.
On Wall Street, institutional investors, many pension funds among them, saw their portfolios whittled away with every new market report Monday.
Illinois’ State Employees Retirement System, though secure with its mammoth $2.4 billion in assets, technically lost $300 million in the 7 1/2 hours of trading, a paper decline that left pension officials concerned but convinced that the fund would recoup with time.
Declining stocks on the NYSE outnumbered gainers by 50 to 1. It was an avalanche that gained strength all day, pushed along, in the view of market analysts, by fears of inflation and higher interest rates, the budget deficit, rising tension in the Persian Gulf and panic selling.
Sparked by declines on stock exchanges around the world, gold prices rose to their highest levels in more than four years as investors looked for a safe harbor for their money. Livestock, cotton, grain and stock index prices also declined.
The dollar closed lower against all major currencies except the Canadian dollar. Treasury Secretary James Baker made an unexpected trip to West Germany Monday to discuss and reaffirm an agreement in February aimed at keeping the dollar stable.
Bond prices firmed, however, as investors switched from stocks to bonds. The key 30-year Treasury bond soared $16.25 per $1,000 of face value to $892.25. The yield, which moves inversely to price, dropped to 9.94 percent from 10.17 late Friday
NYSE Chairman John Phelan bluntly assessed the drop in the market.
“If this wasn’t a financial meltdown, it’s as hot as I ever want to see it,” said Phelan at a packed news conference late Monday afternoon.
It was apparent early in the day that the market was in trouble. At 10:30 a.m., nearly half of the Big Board’s stocks had not opened for trading because sellers vastly outnumbered buyers. Hourly Dow reports showed brief spikes before noon, followed by a dark, deep decline as the day progressed.
Talk persisted throughout the day that the Securities and Exchange Commission was planning to call a halt to trading, an all but unprecedented move that would signal the most serious market trouble.
“The consensus was it was better to let the market work this out,”
Phelan said. “If we shut down here, you can’t shut down around the world.”
Amid the concern about why it happened, who was to blame, who was selling the most and who was buying, was perhaps the most pressing question: How far down can this slump go?
“Right now, we see no reason why we would not open on time Tuesday,”
Phelan said. The market, he said, could withstand another grim day “volume wise,” he added, “but we wouldn’t want to test it. Another day like this and you’re talking about a Dow of 1200. We’ve got to be a lot closer to the bottom than to the top.”
Little agreement was apparent among politicians, market-watchers, regulators, economists or businessmen on the specific cause or the ultimate impact of the selling.
In the broadest definition, some said the selloff was overdue. Many analysts used the words “panic” or “frenzy” to describe the process. Many references were made to the crash of 1929.
At the White House, a formal statement was issued after a meeting of high-level economic advisers and after the market closed. It was aimed at reassuring investors and blocking unpleasant political linkage with Republicans as the presidential campaign heats up.
The “consultations confirm our view that the underlying economy remains sound,” the statement said. “The President is keeping close watch on the markets here and in other countries. We will continue to closely monitor these developments.”
President Reagan was less formal in his reaction as he left the White House to visit his wife in the hospital, where she is recuperating from a breast cancer operation.
“Well,” Reagan said in response to questions shouted by reporters as he was departing, “I only have one thing to say: I think everyone is a little puzzled because-and I don’t know whether, what meaning it might have-because all the business indices are up. There is nothing wrong with the economy. Maybe some people see a chance to grab a profit. I don’t know.”
On Capitol Hill, Democrats were predictably quick to blame the Republicans, who had blamed the Democrat-controlled House Ways and Means Committee, which had approved about $12 billion in tax increases last week, for dampening the marketplace’s passion. It was the deficit, the Democrats said.
“The market is sending an unequivocal message to the President and the Congress to stop the political games and agree on a federal deficit reduction plan,” said Ways and Means Committee Chairman Dan Rostenkowski (D., Ill.).
Harvard economist John Kenneth Galbraith, author of a definitive history on the 1929 stock market crash, labeled the explanation for the massive selloff “basically simple.”
“A lot of people and a lot of institutions were in the market with the expectation that it was going up and the hope they could get out before it went down,” he said.
“This is intrinsically unstable. The situation was made worse by Reagan economic policies and the enormous foreign debt. You can’t blame program selling. It is an overwhelming case of institutional and personal fright. Panic is too strong.”
Merton H. Miller, professor of finance at the University of Chicago Graduate School of Business, an expert on stock market volatility, echoed some of Galbraith’s statements.
“Computer trading is going to get the blame, but this is the same as in 1929, and there was no computer trading then,” Miller said. “There always has to be a villain. In ’29 it was margin buying; now it’s computerized trading. This is simply a panic, like a classic bank run.”
William J. Breen, chairman and professor of finance at Northwestern University’s Kellogg Graduate School of Management, said Monday’s collapse may have little measurable impact on most American investors.
“Is the man on the street better or worse off? His pension probably is not impacted all that much. His house value has not changed. His automobile is worth the same,” he said.
“If he has any stock holdings, they are probably for the longer run. Say he has 12 or 16 years until retirement; by then this will just be an interesting piece of history.”
As the market headed for the sky, he said, a reaction was inevitable.
“Professionals have been waiting for a signal. Nobody wanted to be the first to sell. Once somebody started, nobody wanted to be left behind,” Breen said.
“The market is correcting itself to what in the long run is a more legitimate situation. It’s an unhealthy situation in the short run, but we were bound to move to a more historical relationship between the return on stocks and other instruments.”
Hugh Johnson, chief investment officer for First Albany Corp. in Albany, N.Y., said one of the real victims of the plunge will be confidence in the market, which ultimately has broad effects.
“The confidence in the market has been seriously damaged,” he said.
People planning to buy cars or homes may reconsider, which will affect the auto and home building industries. Companies planning to expand might reconsider in the face of vast paper losses Monday, and that could cost jobs. Reaction from nonprofessional investors was mixed, too.
Christopher Walsh, an Oak Park lawyer, saw a silver lining because his money was not invested in stocks.
“One of the things that makes America great is that people make private decisions and create a diversity in our economy and give it survivability,” he said. “Because of a decision to invest in a new home and save money, we haven’t been hurt.”
Jim Flinner, a Wheaton commuter who works for an accounting firm downtown, also found that the best place to be in the market was no place at all.
“I don’t have any stock so it makes me feel better about my investment decisions over the last year. I looked at the headline, and my first reaction was, Is it really true?” he said.
Dave Ziblkowski, also of Wheaton, had his own assessment.
“The market was so high and now it has come down to where it is still higher than it was a year ago,” he said. “So what does it mean? I am not in the market and I couldn’t explain it or figure it out. It seemed interesting that it was a bigger drop than in 1929, but again, what does it mean?”
Sen. John Rockefeller (D., W.Va.), in Chicago for a Democratic fundraiser, shrugged and laughed when he was asked how much money he had lost because of the plunge in market prices.
“The individual investor hasn’t taken a chunk out. It still may have another drop,” he said. He blamed it all on computerized trading, which he likened to “a giant gorilla.”
“One question is where will all the money go?” Rockefeller said. “Is this the ultimate trend? Is this the big one?”
Nobody knows, is the answer to Rockefeller’s question.
Dr. Lindsay Rosenwald, senior vice president of corporate finance for D.H. Blair, a New York-based investment firm that finances smaller companies, had his own earthy assessment for what happened and his own bullish advice for how to cope with it.
“Markets operate on greed and fear,” he said. “What you’ve got now is fear in a herd philosophy. I’m buying everything I can get my hands on. This is a tremendous opportunity.”
LOOKING BACK ON BLACK MONDAY
