The Crash. Monday, October 19th, will live in infamy. The Dow Jones Industrial Average collapsed 508 points, losing 22.6% of its value in a single session. Volume on the NYSE reached an unprecedented 604 million shares, leaving the ticker tape hours behind.
The Culprit: Program trading. 'Portfolio Insurance' strategies, designed to sell futures as the market falls to hedge portfolios, kicked in simultaneously. This selling pressure crushed the futures market, which dragged down the spot market in a vicious spiral.
The Aftermath: Alan Greenspan's Fed has issued a statement: 'The Federal Reserve, consistent with its responsibilities as the Nation's central bank, affirmed today its readiness to serve as a source of liquidity to support the economic and financial system.' The bleeding has stopped, but the scar remains.