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Quote of the Day

“In a financial crisis, uncertainty is the enemy of confidence.”

-Tim Geithner, on the Thai Government hiding information from the public during its financial crisis, which made it to American shores on this day in 1997. He recounts his time in the IMF working through the crisis in his memoir, Stress Test

October 27th – This Day in Stock Market History

October 27th, 1997 – Stock market “Circuit Breakers” trip for the first time in history as the Dow Plunges 554 points, 7.2%.

At the time, the decline was the largest single day point drop in history.

As stocks fell, market “circuit breakers” were tripped for the first time in US stock market history at 2:35pm as the decline in the Dow reached 350 points. The market would resume trading 30 minutes later, only to be tripped again within 25 minutes as the declines continued. After the second halt, the market would close for the day at 3:30 and not resume trading until the next morning.

New York Times coverage of the Asian stock market crisis
New York Times coverage of the Asian stock market crisis

The decline is attributed to the Asian stock market crisis, which also became known as the “Asian Flu”, which was rapidly worsening. Just 5 days prior, Kia Motors had been taken over by the South Korean Government, and Hong Kong’s main stock index fell as much as 16% on the day.

Source: The Market’s Measure

Best October 27th in Dow Jones Industrial Average History

1987 – Up 2.93%, 52.56 points

Worst October 27th in Dow Jones Industrial Average History

1997 – Down 7.18%, 554.26 points.

Read of the Day

The Asian crisis that sent stock reeling on this day in 1997 also had some lasting implications. The crisis was the first in a series of events that would bring down the famous hedge fund, Long Term Capital Management (LTCM).

Although LTCM weathered the crisis in October and November just fine (in fact, returning 25% for 2007) – soon the “Asian flu” would spread around the world. Stock markets, bond markets, currencies and commodities would all begin falling in unison, something that was thought to be impossible by the creators of LTCM’s models (They stated a 1 in 10^24* chance that the fund would lose all of it’s capital in a year).

In 11 months from this day in 1997, LTCM would be bankrupt and require one of the largest bailouts in history in order to prevent a collapse in the financial system. The tale of Long Term Capital Management is detailed beautifully by Roger Lowenstein in his book When Genius Failed

*= For those not familiar with scientific notation, that is a 1 in 1,000,000,000,000,000,000,000,000 chance.

Go To The Next Day: October 28th, 1929 – Black Monday, stocks fall nearly 13% –>