Veterans of the stock market insist that the four most dangerous words on Wall Street are “this time is different.”
It rarely is. In the autumn of 1929, Irving Fisher, a prominent economist at Yale, assured Americans that stock prices had reached “what looks like a permanently high plateau.” That was on October 15, just days before the opening stumble in an epic crash that, by its nadir in 1931, would cut the American stock market’s value by almost 90 percent. In early 2000, exuberant tech analysts argued that revenues and profits were no longer the metrics that mattered in the internet age. Then the dot-com bubble burst and the technology-laden Nasdaq Composite Index fell almost 80 percent between March 2000 and October 2002. Clearly, when the market is soaring, it can be ruinous to believe that its highs are the mark of some fundamental financial shift.
But sometimes, the market really is different. One of those times was October 19, 1987—Black Monday, the day of the largest percentage declines in Wall Street history. Then as now, a typical day might see the Dow Jones Industrial Average wiggle a few tenths of a percentage point; in the wake of calamitous news, the index might plunge as much as 5 percent. But on that single devastating day, the Dow lost 22.6 percent. Other market barometers, including the broad Standard & Poor’s 500 index, also plummeted on Black Monday. The declines, swift and seemingly unstoppable, were twice as bad as the worst day of the 1929 crash, and no single day’s decline during the meltdown in 2008 even came close, in part because regulators imposed some restrictions on the trading of shares when it was clear the financial sector was getting battered.