This article is an overview of the “black” days in market history and has its task to explain what happened then, why people called them “black” and why investors will always remember them with fear and caution. Once Mark Twain said: “History doesn’t repeat itself but it often rhymes”, that is why we find it important to summarize the events from those days.
Black Friday, September 24, 1869
During the reconstruction era after the American Civil War, the United States government issued large amounts of public debt to finance construction. It was believed that the government would back up its debt with gold. People were heavily investing in gold and prices grew from 20 dollars per ounce all the way to 162 dollars. While gold prices were rising the stock market was plummeting. When the government’s gold of 4 billion dollars hit the market, prices began a downtrend and many investors were ruined. The government’s sell-off triggered a domino effect, causing panic in the public. That price high was not exceeded for over 100 years. Social mood played a key role in causing the gloom and doom effect.
This image is available from the United States Library of Congress’s Prints and Photographs division. It shows the collapse of price of gold.
The Wall Street Crash of 1929, also known as Black Tuesday
Black Tuesday is known as the most devastating stock market crash in the US history, which is followed by the Great Depression. This market crash gave the start of a 10-year economic depression, which is still remembered with a lot of pain, hunger and sorrow. The Depression affected also the Western industrialized countries. The highly optimistic mood, which started in the early twenties (the Roaring Twenties) fueled a speculative stock bubble and drove stock prices to record highs. The average P/E (price to earnings) ratio of S&P Composite stocks was 32.6 in September 1929, clearly above historical norms. Usually all manias end in a state worse than the one they have began.
Black Thursday – Oct. 24, 1929
The Dow Jones Industrial Average plunged 11% following the Wall Street crash of 1929 and the Great Depression of the 1930s.
Black Monday – October 19, 1987
Stock markets around the world crashed, losing huge amounts of value. At first the crisis started in Hong-Kong and afterwards spread to Europe and the US. The Dow lost 22.61% of its value.
By the end of October, stock markets in Hong Kong had fallen 45.5%, Australia 41.8%, Spain 31%, the United Kingdom 26.45%, the United States 22.68%, Canada 22.5% and New Zealand’s 60%. The Black Monday decline was the largest one-day percentage decline in the Dow Jones.
Black Wednesday refers to 16 September 1992
The British Conservative government was forced to withdraw the pound sterling from the European Exchange Rate Mechanism because they were unable to match the interest rate of the German Bundesbank. George Soros made over 1 billion GBP profit by short selling the Sterling. Now is the time to clear all conspiracy theories and explain that the markets can not be manipulated no matter how big investors are. Social mood drives the markets not institutions, politicians or secret societies.
Market psychology is key and has it ups and downs, an ever repeating cycle of optimism and pessimism, swinging from fear to mania.