with specific events are shown in Table 13-1b.^1 Monetary policy is the
biggest single driver of these massive market outbreaks of euphoria or
fear. Out of the 5 largest moves in the stock market over the past century
for which there is a clearly identifiable cause, 4 have been directly asso-
ciated with changes in monetary policy.
If you focus in on just the 10 largest daily market moves since 1885,
only 2 can be attributed to a specific news event. The record 22.6 percent
one-day fall in the stock market on October 19, 1987, is not associated
with any one readily identifiable news event. In more recent years, since
1940, there have been only four days of big moves where the cause is
identified: the 7.13 percent drop on September 17, 2001, when the mar-
kets reopened after the terrorist attacks; the 7.18 percent drop on Octo-
ber 27, 1997, when there was an attack on the Hong Kong dollar; the 6.91
percent drop on Friday, October 13, 1989, when the leveraged buyout of
United Airlines collapsed; and the 6.54 percent drop on September 26,
1955, when President Eisenhower suffered a heart attack. The decline in
October 1989, although often attributed to the collapse of the leveraged
224 PART 3 How the Economic Environment Impacts Stocks
TABLE 13–1a
Daily Changes over 5 Percent in the Dow Jones Industrial Average (Negative Changes Are Boldface,
and Asterisks Denote Changes Associated with News Items; Excludes 15.34 Percent Change from
March 3 to 15, 1933, for U.S. Bank Holiday)
Rank Date Change Rank Date Change Rank Date Change
1 Oct 19, 1987 -22.61% 18 Aug 12, 1932 -8.40% 35 Jan 8, 1988 -6.85%
2 * Oct 6, 1931 14 .87% 19 Mar 14, 1907 -8.29% 36 Oct 14, 1932 6 .83%
3 Oct 28, 1929 -12.82% 20 Oct 26, 1987 -8.04% 37 Nov 11, 1929 -6.82%
4 Oct 30, 1929 12 .34% 21 Jun 10, 1932 7 .99% 38 * May 14, 1940 -6.80%
5 Oct 29, 1929 -11.73% 22 Jul 21, 1933 -7.84% 39 Oct 5, 1931 -6.78%
6 Sep 21, 1932 11 .36% 23 Oct 18, 1937 -7.75% 40 * May 21, 1940 -6.78%
7 Oct 21, 1987 10 .15% 24 * Sep 5, 1939 7 .26% 41 Mar 15, 1907 6 .70%
8 Nov 6, 1929 -9.92% 25 * Feb 1, 1917 -7.24% 42 * Jun 20, 1931 6 .64%
9 Aug 3, 1932 9 .52% 26 * Oct 27, 1997 -7.18% 43 Jul 24, 1933 6 .63%
10 * Feb 11, 1932 9 .47% 27 Oct 5, 1932 -7.15% 44 * Jul 26, 1934 -6.62%
11 * Nov 14, 1929 9 .36% 28 * Sep 17, 2001 -7.13% 45 Dec 20, 1895 -6.61%
12 Dec 18, 1931 9 .35% 29 Jun 3, 1931 7 .12% 46 * Sep 26, 1955 -6.54%
13 Feb 13, 1932 9 .19% 30 Jan 6, 1932 7 .12% 47 Jun 19, 1933 6 .38%
14 * May 6, 1932 9 .08% 31 Sep 24, 1931 -7.07% 48 May 10, 1901 6 .36%
15 * Apr 19, 1933 9 .03% 32 Jul 20, 1933 -7.07% 49 Oct 23, 1929 -6.33%
16 Dec 18, 1899 -8.72% 33 * Oct 13, 1989 -6.91% 50 Aug 6, 1932 6 .33%
17 Oct 8, 1931 8 .70% 34 * Jul 30, 1914 -6.90% 51 * Jul 26, 1893 -6.31%(^1) This expands the research originally published in David M. Cutler, James M. Poterba, and
Lawrence H. Summers, “What Moves Stock Prices,” Journal of Portfolio Management, Spring 1989,
pp. 4–12.