Black Monday, a Historic Day in Wall Street

On the 5th August 2024, the crypto market and Wall Street experienced a day of panic, which many called Black Monday. But where does this name come from? Join me as we explore its origin and meaning.

We need to go back to 1987, specifically Monday, October 19th, when the Dow Jones dropped 22.6% and the S&P 500 lost 30% in a single day! This event marked the beginning of a market decline that would go down in history.

Although the drop cannot be attributed to one particular event or news, we can understand it as the sum of several factors that led to one of the most famous crashes in history. Let’s take a look:

– A bull market that hadn’t seen significant corrections since 1982

– The emergence of computerized trading, which accelerated the sell-off

– Portfolio Insurance: a program trading strategy that aimed to hedge a portfolio of stocks by short-selling stock index futures. The programs began liquidating stocks as certain loss targets were hit, pushing prices lower

– Triple Witching: the Friday before the crash, experienced the simultaneous expiration of stock options, stock index futures, and stock index options contracts. This causes great volatility

– Mass panic: Events like these often create a domino effect. When the masses join in and start trading in panic, the fall accelerates even more

After the crash, the Fed intervened by lowering the benchmark interest rate by 50 basis points. Sound familiar to something discussed this week? New regulations were also introduced to prevent flash crashes caused by computer programs.

So, on Monday the 5th, there was panic in the market, but then a reversal occurred throughout the week, ending with prices back at the same level as the previous Friday, erasing the entire drop and then printing a V-Shaped recovery.

While every time there’s a significant drop on a Monday, it gets labeled as Black Monday, it’s important to know the history to understand where the name comes from and whether something like this could happen again.

Not all Mondays are black!