The Dow Jones Industrial Average plunged 508.32 points, losing 22.6 percent of its total value. That fall far surpassed the one-day loss of 12.9 percent that began the great stock market crash of 1929 and foreshadowed The Great Depression. The Dow's 1987 fall also triggered panic selling and similar drops in stock markets worldwide.
The '87 crash marked the end of a five-year bull market that had seen the Dow average rise from 776.92 points in August 1982 to a high of 2,722.42 points in August 1987. (The Dow average was computed from the stock prices of 30 major companies, selected for their broad level of public ownership and their total market value. )
Unlike in The Great Crash of 1929, the market soon rebounded after the crash, posting record one-day high gains of 102.27 the next day, and 186.64 points two days later. By September 1989, the Dow had regained all the value it had lost in the crash.
In searching for the cause of the crash, many analysts found fault with "program" trading by large institutional investing companies. In program trading, computers were programmed to automatically order large stock trades when certain market trends prevailed. In response, the New York Stock Exchange (NYSE) restricted some forms of program trading.
The NYSE and the Chicago Mercantile Exchange also instituted a "circuit breaker" mechanism in which trading would be halted on both exchanges for one hour if the Dow Jones average fell more than 250 points in a day, and for two hours if it fell more than 400 points.
Recent Mentions on Fool.com
- Don't Panic! Here's Why This Stock Market Correction Won't Lead to Catastrophe
- This Hated Company Made the Top 5 Online Retailer List
- Will China Help The Microsoft Xbox One Close The Sony PlayStation 4?s Massive Sales Lead?
- 1 More Reason You Should Be Buying Stocks
- 3 Reasons the BlackBerry Passport Will Fail
- Defense News Roundup: More Nukes for U.S. and Allies, and Are Hueys Heading to Lebanon?