The Market Crash of 87: Definition, Causes & Lessons Learned

The Stock Market Crash of 1987 was a dramatic one-day plunge in the Dow Jones Industrial Average, with the index dropping more than 20% in a single day. This crash, which took place on October 19th, 1987, is also known as Black Monday. It was the largest single-day decline in the Dow's history, and it sent shockwaves throughout the financial world.

While no single factor contributed to the Dow's largest daily decline, the crash was primarily caused by a combination of overvaluation in the Stock market, an increase in program trading, and a lack of liquidity in the market. This combination of factors created a perfect storm that sent the market spiraling downward.

In the aftermath of the crash, the Securities and Exchange Commission (SEC) took action to reduce the amount of program trading in the market. It also made it illegal for a single investor to own more than 5% of the shares of a particular Stock. In addition, the SEC approved the dismissal of lawsuits challenging the prudence of employee Stock ownership plan (ESOP) offerings in defined contribution (DC) plans.

The Stock Market Crash of 1987 served as an important reminder that market corrections can happen quickly and unexpectedly. It also highlighted the importance of diversification, as well as the need to have a plan in place for dealing with market volatility.

In the years since the crash, investor confidence has largely been restored, and the market has continued to grow. However, investor should still take caution when investing in Stock, and be aware of the potential risks associated with investing.

In addition, investor should also have a long-term outlook when investing in Stock. This is especially true today, as investor will have to gain exposure to the digital transformation trends that will be the defining forces for tech Stock over the next decade.