Definition
The term Black Monday refers to October 19, 1987, when the stock market would lose 22% of its value in a single day as measured by the Dow Jones Industrial Average. Black Monday is considered to be one of the most infamous trading days in the history of investing.
Explanation
On October 19, 1987, more commonly referred to as Black Monday, the Dow Jones would fall 508 points, or lose 22% of its value, in just a single day. Investors would also lose an estimated $500 billion in assets. Black Monday would signal the beginning of a global decline in stocks, with markets around the world losing 20% or more by the end of the month.
The magnitude of the decline on Black Monday is attributed to a combination of panic selling by investors and program trading. There was no event, or announcement, that would have explained the steep drop in stock prices. As investors began selling shares that day, computerized trades such as stop loss orders were triggered, flooding the market with additional sell orders. Following the Security and Exchange Commission's (SEC) investigation into factors that contributed to the rapid sell off of stocks, several guidelines were introduced into the marketplace. The most notable guideline is the circuit breaker concept, which halts trading under certain conditions.