In early April, U.S. stock markets saw sharp losses after President Donald Trump announced sweeping tariffs on imported goods — spooking investors and sparking comparisons to past stock market crashes.
On April 3 and 4, the Nasdaq Composite nosedived 11.4 percent, the S&P 500 fell 10.5 percent and the Dow shed 9.4 percent.
It was the worst week Wall Street had seen in a while, and it didn’t take long before headlines and analysts like Jim Cramer started drawing comparisons to Black Monday, the infamous crash of 1987.
But here’s the thing: While the numbers feel dramatic, a full-scale repeat of Black Monday is unlikely. And there are a few reasons why.
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What is Black Monday?
Black Monday is the term used for Oct. 19, 1987 — a day when the U.S. stock market suffered its largest single-day percentage loss ever. The Dow Jones Industrial Average dropped a staggering 22.6 percent in one trading session.
The unexpected collapse sent global markets into a tailspin. Stock markets in Australia, Hong Kong and Mexico also saw brutal declines. Billions of dollars in market value were wiped out globally in one of the worst stock market crashes of all time.
This wasn’t just a bad day — it was a systemic crisis that seemingly appeared out of nowhere. Unlike the recent stock market decline as a result of tariffs, there were no obvious macroeconomic disasters triggering the crash.
Instead, Black Monday was a brutal chain reaction fueled by early computerized trading systems, panic selling and a market strategy known as portfolio insurance.
Why did Black Monday happen?
The crash didn’t stem from a single source. Instead, it was a perfect storm of several factors, including:
- Program trading: The rise of computerized systems allowed Wall Street traders to execute rapid, large stock orders. On Black Monday, when the market dipped, these systems started dumping stocks at a rapid pace. More selling triggered more drops, which triggered even more selling, accelerating the downturn.
- Portfolio insurance: This strategy involved selling futures and options contracts to hedge against market losses. But when everyone did it at the same time, it magnified the fall and overwhelmed the system. As stock prices fell, more futures were sold, creating a feedback loop that intensified the market’s decline.
- Market psychology and panic selling: Investors rushed to sell off assets, further amplifying the market’s downward spiral. Everyone was trying to get out at the same time, but there weren’t enough buyers. It was a classic fire sale.
- Economic factors: Concerns over rising interest rates and geopolitical tensions contributed to the crash. However, none of these broader economic factors alone would have caused such a sudden collapse. It was the mechanics of the market itself that failed.
How the stock market changed after Black Monday
Today’s markets aren’t crash-proof. But they’re much more crash-resistant than they were in 1987.
Circuit breakers
In the aftermath of Black Monday, one of the most important reforms was the introduction of stock market circuit breakers. Circuit breakers are automatic trading halts built into the stock market. They kick in when major indexes drop by a certain amount in a single day. The idea is simple: When the market is in freefall, give investors a timeout.
Today, if the S&P 500 drops 7 percent from the previous close, trading is paused for 15 minutes. A 13 percent drop triggers another 15-minute pause. A 20 percent plunge shuts things down for the day. This gives traders time to absorb new information and avoid panic selling that could worsen the crash.
Circuit breakers can halt trading on any given day if the market drops fast enough. And yes, they’ve been used in the 21st century. During the early days of the COVID-19 pandemic in March 2020, circuit breakers tripped four times in less than two weeks. Trading stopped. Markets stabilized — somewhat. But importantly, market fears never turned into a runaway collapse.
And while circuit breakers don’t solve the root causes of a sell-off, they do prevent the kind of spiraling chaos that marked Black Monday.
Margin requirements
Revisions to margin requirements were another major regulatory reform. Regulators began enforcing stricter rules on how much leverage investors could use, ensuring people had enough skin in the game to cover their bets.
That helped reduce the risk of massive, cascading margin calls that force investors to keep selling assets to cover debt obligations.
Other changes
At the same time, the Securities and Exchange Commission (SEC) and other regulatory bodies began looking closely at automated and high-frequency trading. They pushed for more transparency in how trades were executed and developed systems to monitor unusual activity.
The New York Stock Exchange also restructured how it coordinated trading halts between the stock and futures markets. In 1987, those two markets weren’t communicating well, which meant pricing mismatches worsened the crash. Today, communication between exchanges happens in real time. If one part of the system starts to go haywire, the others know immediately.
Could another Black Monday happen?
It’s always possible that Wall Street could suffer another Black Monday-level sell-off, but it would probably look different than it did nearly 40 years ago.
Today’s market is much more automated, with high-frequency trading firms executing thousands of trades in seconds. Algorithms dominate order flow, and some of them are still designed to respond automatically to price movements. That means the potential for a flash crash still exists.
And then there’s the matter of public sentiment. Today’s investors are more plugged in than ever through real-time updates, a 24/7 news cycle and social media. Information (and misinformation) spreads in seconds. That can stoke fear and amplify market rumors — all of which can lead to extreme volatility.
However, the safety nets built after 1987, such as circuit breakers, give markets some level of protection and breathing room.
What investors can learn from Black Friday
The 1987 Black Monday crash served as a wake-up call for Wall Street. It exposed how fragile markets can be when fear, technology and risky trading practices collide. It also led to significant reforms in market operations and oversight.
Today’s systems aren’t perfect, but they’re battle-tested. And when things get shaky — like they did after Trump’s sweeping tariff rollout — there are guardrails in place.
That said, volatility isn’t going anywhere. Stocks will fall. Headlines will stoke worry. But for investors, the worst move is to panic. Panic-selling locks in losses, and it’s what turned Black Monday into a disaster in the first place.
Markets are designed to recover. They always have. In fact, after the 1987 crash, the Dow recovered everything it lost in less than two years.
The takeaway? Take a breath. If you’re investing for the long term — and you should be — short-term drops are just noise. Staying calm when others are freaking out is often the best financial decision you can make.
Crashes happen. Recoveries happen, too. The key is not to let fear drive your portfolio.
Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.
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