Precedent · Market shock
Black Monday
1987
October 19, 1987 — the Dow fell 22.6% in a single day, the largest one-day percentage drop in history, driven by portfolio-insurance and program-trading cascades rather than any fundamental cause. The market recovered most of the loss within two years.
The signature
Each variable's peak deviation from the pre-event baseline, with the curve shape, the lag before it moved, and how long the recovery ran.
Methodology
A pure liquidity/microstructure crash. Equities gapped down violently, volatility exploded, then staged a V-shaped recovery as the Fed injected liquidity and no fundamental damage materialized. The signature is a mechanical selling cascade — the lesson is about market plumbing, not the economy. Shapes: V (equities — sharp crash, fast recovery), spike (volatility).
What's different now
Read for fragility from leverage + automated selling. The 1987 culprit was portfolio insurance; today it is ETFs, vol-targeting funds, and dealer gamma. A fundamentally-healthy market can still crash on plumbing — and, crucially, recover fast when there is no underlying rot to price.