Black Monday
On October 19, 1987, the Dow dropped 22.6 percent in one session, still the largest single-day percentage decline in its history. The S&P 500 futures contract fell even harder. Portfolio insurance, a hedging strategy that sold futures as prices declined, fed a mechanical loop with program trading and cascading stop-losses. Nobody had modeled the interaction at scale. The damage did not spill into the real economy, which is why regulators had room to act in a single year rather than five.
The Brady Commission, tasked with investigating the crash, identified program trading and portfolio insurance as the primary accelerants. The core problem: sell orders were triggered automatically without regard to whether a buyer existed.
04 · Circuit Breakers
Black Monday's 22.6% single-day drop exposed the fragility of fully-electronic, program-driven markets. The NYSE responded within a year — an unusually fast turnaround, precisely because the 1987 crash did not turn into a recession.
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