How Miraculous Mysterious Trades on “Terrible Tuesday” Saved the World From Financial Armageddon

A feel-good conspiracy theory following October 1987’s Black Monday

Stephen Foerster
12 min readOct 6, 2022

Jean-Christophe Benoist, CC BY 3.0, via Wikimedia Commons

This month marks the 35th anniversary of one of the most famous events on Wall Street. I’ve previously written about the worst U.S. stock market crash in history, known as Black Monday, when stocks dropped on average by over 22 percent on Monday, October 19, 1987. The next day, markets rebounded by almost 6 percent, with a further increase of over 10 percent the following day. What’s largely forgotten is the story of what happened on October 20, known then as Terrible Tuesday.[1] That day was described by a general partner at a major asset management firm as “the most dangerous day we had in 50 years. I think we came within an hour” of a meltdown of the stock market. What saved the world from financial Armageddon were some mysterious trades — possibly market manipulation — of a thinly-traded stock index futures contract. If you’re intrigued by conspiracy theories, this is a rare feel-good one.

Black Monday
On August 25, 1987, the Dow Jones Industrial Average (Dow) closed at a record high. In early September, newly appointed Federal Reserve chairman, Alan Greenspan, signaled his intent of increasing interest rates for the first time in three years. By October, with the release of higher-than-expected trade deficit figures and fears of a declining dollar, markets were jittery. On Friday, October 16, long-term Treasury yields rose above the psychologically important 10 percent level, and for the first time ever, the Dow dropped by more than 100 points — another psychologically important milestone. The stage was set for Monday’s market rout.

On Monday, October 19, the Dow dropped an astounding 508 points, from 2246.7 to 1738.7, down 22.6 percent, almost twice as bad as the previous record one-day drop of 12.8 percent on October 28, 1929.[2] Trading on the New York Stock Exchange (NYSE) reached a record of over 600 million shares, double the previous record, on the prior Friday. The ratio of declining to rising stocks was 40-to-1 (a ratio of more than 3-to-1 was considered a rout). John J. Phelan, the NYSE’s chairman, blamed the drop on at least five factors: markets had increased…

Stephen Foerster

I’m a Finance prof, CFA, and author of In Pursuit of the Perfect Portfolio (with Andrew Lo). I write stories about investing. (I don’t give financial advice.)