Black Monday was 28 years ago today.
When people refer to the events of that October day, they’re quick to cite the shocking 508-point plunge — or the fact that that three-digit number translated to a 22.6% drop.
But those numbers alone don’t quite convey the fear that investors and traders felt at the time.
In his new note, veteran trader Art Cashin, the director of floor operations for UBS Financial Services at the NYSE, shared what he remembered about the mood on the Floor as Black Monday went from bad to worse.
He details the frenzy among traders, and even recalls a broker soberly alluding to the mythical gladiator’s salute, immortalised by Roman historian Suetonius.
Check it out:
On Black Monday, I was running the Floor for PaineWebber. I arrived early in the morning to check out the systems and the staffing. We expected a tumultuous day since the Dow had fallen 10% the week before, including an unprecedented 108 point drop at the close of Friday’s Expiration. (The largest point drop in history at the time.) With all systems checked, we headed up to the dining room of the Luncheon Club for a quick cup of coffee. The place was jammed with other nervous early arrivals. A buzz developed as word spread that several foreign markets were imploding — down 8% to 10%. Some of the other traders would kid me about my penchant to throw in an occasional Latin phrase in stressful or strange situations. (Four years of Jesuit Latin can build odd habits.) One broker approached my table, put his right hand across his chest and said “Moritori te salutamus esse”. It was an approximation of the fabled gladiator’s salute — “We, who are about to die, salute you”. I nodded in response and we all headed for the floor to face the unknown. It is a moment in my life I shall never forget.
“Even if there had been no “October Surprise”, the year 1987 would have been a remarkable one for Wall Street,” Cashin noted. “The Dow started the year below 2000 and ran to 2722 by early Fall.”
What caused the crash? Cashin compiled some possible explanations: “The rally was breaking all the old rules. A group of guys in Chicago came up with a new rule called Portfolio Insurance ( or Dynamic Hedging) which might be synopsized as buy strength/sell weakness (we’ll explain another day). The U.S. dollar was weak and the subject of controversy. There was some conflict and confrontation in Iran (U.S. bombing Iranian oil platforms). The President’s wife and right hand had gone into the hospital for a rumoured cancer operation. And there was a new SEC chairman who was misquoted in the midst of the free-fall suggesting that maybe markets should close. The misquote greased the skids.”
Remarkably, the stock market didn’t die and GDP growth never went negative that year.