The collapse began in Asian markets and spread west as trading opened. In New York, a flood of sell orders overwhelmed the exchange, and computer programs designed to protect portfolios, known as portfolio insurance, added to the selling as prices fell. About $500 billion in value disappeared from US stocks in a day. The new Federal Reserve chairman, Alan Greenspan, promised the next morning to supply liquidity, and markets recovered within two years. The crash led to trading "circuit breakers".
Stocks had risen strongly through most of 1987, and by October many investors feared the market was overvalued. The previous week had brought large declines, worries about the US trade deficit and rising interest rates, and news of fighting in the Persian Gulf. By the time New York opened on Monday, October 19, markets in Hong Kong and London had already fallen sharply.
Sell orders piled up so fast that many stocks could not open for an hour. The trading volume, some 604 million shares, was nearly double the previous record, and the ticker ran hours behind. Portfolio insurance strategies, which automatically sold stock index futures as prices dropped, pushed prices down further, and arbitrage traders carried the selling back to the stock market. The Dow closed at 1,738.74.
Many feared a repeat of 1929. Greenspan, in office for just over two months, issued a one-sentence statement on October 20 affirming the Fed's "readiness to serve as a source of liquidity", and banks were encouraged to keep lending. There was no depression; the Dow regained its pre-crash level in September 1989.
Key people: Alan Greenspan, John Phelan