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Everyone forgets the most important thing about the 1987 Black Monday stock-market crash

Elena Holodny
black monday market crash newspapers


Thirty years ago, the Dow Jones industrial average plunged by 22.6% — a gut-wrenching 508 points — to 1,738.74 on what is now referred to as Black Monday.

It was by far the largest one-day percentage drop in US stock-market history. That would be the equivalent of the Dow crashing by about 5,233 points in a single day, down to 17,921.

But as scary as that October day was, US economic growth remained resilient, and gross-domestic-product growth never went negative. This is arguably the most important thing to remember about the whole ordeal.

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That's not to say the stock market has zero effect on the economy. After all, a huge sell-off could slow the economy and even lead to a recession.

But analysts have previously suggested that stock-market crashes typically lead to less severe recessions than something like a housing crash or a credit crisis, for example.

Lombard Street Research's Dario Perkins once compared the effect on GDP from both the dot-com stock-market crash of 2000 and the subprime-mortgage crisis of 2007-08. GDP continued to rise during the former, but it got slammed in the wake of the latter.

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Lombard Street Research

Going back to stocks, it's encouraging to remember that the stock market didn't die on Black Monday. The Dow is up about 1,231% since that fateful day, to about 23,150.

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