Everyone forgets the most important thing about the 1987 Black Monday stock market crash

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Everyone forgets the most important thing about the 1987 Black Monday stock market crash

black monday market crash newspapers

AP

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Thirty years ago, the Dow Jones Industrial Average plunged by 22.6% - a gut-wrenching 508 points - to 1,738.74 on what is now referred to as Black Monday.

It was by far the largest one-day percentage drop in US stock market history. That would be the equivalent of the Dow crashing by about 5,233 points in a single day, down to 17,921.

But as scary as that October day was, US economic growth remained resilient, and gross-domestic-product growth never went negative. This is arguably the most important thing to remember about the whole ordeal.

1987 crash 3

UBS

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That's not to say the stock market has zero effect on the economy. After all, a huge sell-off could slow the economy and even lead to a recession.

But analysts have previously suggested stock-market crashes typically lead to less severe recessions than something like, for example, a housing crash or a credit crisis.

Lombard Street Research's Dario Perkins once compared the effect on GDP from both the dotcom stock market crash of 2000 and the subprime-mortgage crisis of 2007-2008. GDP continued to rise during the former, but it got slammed in the wake of the latter.

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Lombard Street Research

Going back to stocks, it's encouraging to remember the stock market didn't die Black Monday. The Dow is up about 1,231% since that fateful October day, to around 23,150.

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