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. Last Updated: 07/27/2016

'87 Crash Still Haunts Stock Market Veterans




LONDON -- Last week's 6 percent tumble in Wall Street shares recalled memories of the global stock market crash almost exactly 12 years ago - an event that still haunts trading veterans who lived through October 1987.


While last week's fall in U.S. shares pales in comparison to the double digit percentage point drop in share prices back then, the mood of the market is uncomfortably similar.


Oil prices are rising, the dollar is falling and the U.S. current account deficit continues to climb - just like in 1987.


For some, the 1987 crash seems just like yesterday.


"We were on the telephone to our San Francisco office and there was bedlam," said Rhoddy Swire, chairman of the private equity firm, Pantheon, recalling the October 1987 crash.


"No one could talk, no one could do anything. There was a line of 50,000 IBM shares at any price and no prices forthcoming," he said. The Dow Jones industrial average peaked in late August 1987 at 2,722. But during the following month it was rocked back and forth before slumping 90 points on Oct. 6.


The U.S. stock market slid more than 11 percent between Oct. 5 and Oct. 14, prompted by tumbling U.S. bond prices after bad trade figures. Finally on Friday, Oct. 16 the Dow fell a record 108 points amid a huge volume of sell orders.


On the same day, Britain's asset markets had been shut down by a freak hurricane.


"London was basically shut down and it was very eerie because no phones were ringing," said Elli Gifford, who was working in investment research at the time.


On the following Monday, now known as "Black Monday," Hong Kong stocks fell 11 percent, then London shares fell 250 points as investors dumped holdings ac ross the board.


Later that day U.S. stocks fell 22.6 percent, prompting the headline in the New York Daily News: "Wall Street Goes Mad!"


The crash was particularly painful in Britain where a raft of government privatizations had meant share ownership had spread out to include many first-time buyers whose experience was limited to rising markets. Considerable personal and institutional wealth, often supplemented by borrowed funds, was holed in a single day.


There was still further to go with Tokyo losing a fifth of its stock market value the following day, Hong Kong shutting up shop and London giving up another 250 points, taking its losses to 20 percent in two days.


Just as concerns rose that global equity markets were sliding towards freefall, the brakes were put on in early afternoon trading in New York. By mid-afternoon the market had turned, closing above 2,000 after plunging to around 1,600 earlier in the day.


Within a few months the pain of October 1987 was beginning to fade as indices recovered and 12 years later the Dow is worth four times its level then.


But for many investors it was a terrible lesson."It was probably the first crash that people working in the market had seen," said Gifford. "It was true panic."