In addition to the notorious and well-known Wall Street Crash of 1929, another significant moment in U.S. economic market history was the so-called Black Monday. The term may sound dramatic, but it comes from the coincidence of one of the most important stock market indices in the U.S., the Dow Jones, plunging 22.6% on a Monday, October 19, 1987. This event marked the largest single-day drop in stock market history.
The origins of the 1987 crash are still debated today. Different theories have been developed to explain the unbelievable events of the time. The major issue raised from this is that the Black Monday proved that, even after the 1929 crisis, markets were still vulnerable to the possibility of collapse, and this remains true today.
A clear example of this was the so-called 2008 Crisis, which occurred on September 11 and had its geopolitical and economic impacts felt in the United States, specifically in New York, at the financial center of Wall Street. It began back in 2007 due to the loss of real estate assets on the stock market and ended dramatically in 2009, marked by a global recession. Being one of the most recent big economic crisis, it left a global memory defined by the overthrow of governments, high unemployment rates, nationalization of banks, and violent protests around the city of New York.
More than just a collapse of the capitalist system at the time, the crisis began due to real estate speculation in the U.S.. As prices soared far above the market, the sector ended up collapsing. Mortgages lacked the expected liquidity, leading to an economic breakdown due to rising interest rates and inflation, all resulting from financial assets. With the reduction in corporate profits, there were massive layoffs. Two years later, the crisis hit Europe, leading to the devaluation of the euro.
This event left a significant mark on world economic history and triggered a domino effect that drastically shook the global economy. For economists, this may have been the beginning of a potential new “Black Monday”.
so… what’s the situation now?
Amid the financial chaos of that time, even with the current recovery of the American and other economies, a new “Black Monday” remains possible. Data from g1, a well-known Brazilian news site, released last Wednesday, August 5th, shows global fear regarding market crisis. This data is based on the worst numerical result ever recorded by the Tokyo Stock Exchange in Japan since the 1987 event.
What seems like a confidential issue for each country has global consequences. With massive outflows from stock exchanges in various countries, the likelihood of a potential imbalance, or in extreme cases, a new stock market crash, is even greater. Given the vastness of the U.S. economy, where and how this money is invested is replicated on a global scale, affecting other countries’ stock markets.
The logic is this: stock values tend to fluctuate constantly, depending on market conditions and investors’ perceptions of the technology companies they plan to invest in. The safest way for these investors to make such investments is by relying on the U.S. economy, a global benchmark. However, with a 35% chance of U.S. economic contraction, investors are worried. A concrete consequence of this was the financial levels of Japan’s stock market.
impacts on THE brazilian economy
With American companies hiring fewer employees and fears of unemployment looming over the country, investors fear that the world’s largest economy could collapse, entering a recession. In a cascading effect involving Europe and the United States, Brazil is not left out. Due to these factors, the Ibovespa, the main index of the Brazilian Stock Exchange, fell by -0.46% and presented the highest commercial dollar rate since 2021. As an emerging country, Brazil is considered a high-risk investment and is likely to suffer even more from the outflow of these resources.
The so-called B3 (São Paulo Stock Exchange) has recorded foreign capital outflows every month of 2024 so far, resulting in a negative balance for the country compared to the amount of investments. This fact shows that foreign investors are leaving Brazil due to high U.S. interest rates, which increase the attractiveness of U.S. government bonds, known as Treasuries. These are considered risk-free and therefore attract capital.
With the boom in the technology sector, specifically in A.I (Artificial Intelligence), foreign investors see an opportunity to invest in these segments outside Brazil, as such opportunities are lacking here. Major Brazilian stock market companies, such as Vale and Petrobras, are linked to commodities. Another negative impact on Brazil is the devaluation of the real due to fewer dollars circulating in the country. As a result, imports become more expensive and directly affect inflation.
In addition to various combined factors, the fear of a new “Black Monday” is increasingly alarming foreign investors. The 2008 Crisis was a representation of what such a crisis could have been 17 years ago. But, with an even more precarious situation for the U.S. economy now, the economy, politics, and society will no longer be the same. Thus, the world after a new “Black Monday” could never fully recover.
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The article below was edited by Bruna Blanco.
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