Tomorrow is the 25th anniversary of the stock market crash of 1987. A day when the Street stood still as the NYSE plummeted 22% and lost 508 points.All this after what seemed like a never-ending rally that had traders throwing caution to the wind.
Wall Street stalwart Art Cashin was there, and has written about the experience in his note today. He writes of dark clouds forming — A wave of steady selling on Friday, October 16th, Nancy Reagan’s weekend hospitalization due to cancer, the Treasury Secretary’s battle with the German’s over currency, and the possibility of war with Iran.
At the time, Cashin was running the floor for firm Paine Webber. After the weekend, he awoke before dawn to find Hong Kong down 10%.
From Cashin’s note:
Once I had checked out the systems and verified staffing, I went with a partner up to the Luncheon Club for a quick coffee. With markets around the globe all down about 10%, I didn’t know if we’d get to a coffee – or anything else after we opened.
We sat about two tables away from a table where NYSE Chairman John Phelan sat with several directors and some staff. Every 10 minutes or so, someone would rush up to Phelan and slip him a note or whisper in his ear. It was evident that things were deteriorating. As I headed for the floor, I went past Phelan’s table, put my right arm across my chest and said – “Nos Morituri Te Salutamus Esse”. It was the gladiator’s salute to the Emperor – “We, who are about to die, salute you”. Phelan nodded without a smile.
Trading was delayed, but after a tense open, stocks stabilised until there were reports that the SEC Chairman David Ruder said that trading may have to be halted.
That’s when the selloff started and the Dow fell 508 points.
What is forgotten about this incident, says Cashin, is that the next day was worse. The Dow opened up 200 points and then went negative, and there was an audible gasp on the floor. Trading was halted on several Blue Chips that made up the Dow.
Banks planned to cut off lines of credit to specialists on the floor, fearing contagion.
NYSE Chairman Phelan reached out to the recently appointed head of the Fed, Alan Greenspan. Unfortunately, Greenspan was on a plane. Desperate, Phelan called the President of the New York Fed, Gerry Corrigan. He sensed the danger immediately and began calling the banks to reopen the credit lines. They were reluctant but Corrigan ultimately cajoled them. The credit lines were reopened and the halted stocks were reopened. Best of all, the market started to rally and closed higher on the day.
But the market was just a few phone calls away from collapse. That is certain. “It was a time I’ll never forget,” Cashin writes.
Check out the Nightly Business Report from that day below: