The stock market crash of 1929 was a collapse of stock prices that began on October 24, 1929. By October 29, 1929, the Dow Jones Industrial Average had dropped by 30.57%, marking one of the worst declines in U.S. history. It destroyed confidence in Wall Street markets and led to the Great Depression.
Key Takeaways
- The stock market crash of 1929 was one of the worst in U.S. history.
- The three key trading dates of the crash were Black Thursday, Black Monday, and Black Tuesday. The latter two days were among the four worst days the Dow has ever seen, by percentage decline.
- Overconfidence during the Roaring Twenties created an unsustainable stock Ybubble.
- Overnight, many people lost their businesses and life savings, setting the stage for the Great Depression.
A Timeline of What Happened
The first day of the crash was Black Thursday. TheDow openedat 305.85. It immediately fell by 11%, signaling a stock market correction. Trading was triple the normal volume. Wall Street bankers feverishly bought shares to prop it up. The strategy worked.
On Friday, October 25, the positive momentum continued. The Dow rose by 0.6% to 301.22.
On Black Monday, October 28, the Dow fell by 13.47% to 260.64.
On Black Tuesday, October 29, the Dow fell by 11.7% to 230.07. According to a New York Times article published a day later on October 30, 1929, panicked investors sold an unprecedented number of shares, 16,410,030 to be exact.
Black Monday and Tuesday were among the four worst days in Dow history. They were followed by two subsequent crashes:
- During the 2020 stock market crash, with a nearly 10% drop on March 12 and a 12.93% drop on March 16.
- A 22.6% decline on Black Monday 1987.
Financial Climate Leading Up to the Crash
Earlier in the week of the stock market crash, the New York Times and other media outlets may have fanned the panic with articles about violent trading periods, short-selling, and the exit of foreign investors; however many reports downplayed the severity of these changes, comparing the market instead to a similar "spring crash" earlier that year, after which the market bounced back again.
The Dow was already down by 28% from its September 3 high, according to S&P Dow Jones Indices. That signaled a bear market. In late September, investors had been worried about massive declines in the British stock market. Investors in Clarence Hatry's company lost billions when they discovered that he had used fraudulent collateral to buy United Steel. A few days later, Great Britain's Chancellor of the Exchequer, Philip Snowden, described America's stock market as "a perfect orgy of speculation."
The next day, U.S. newspapers agreed. They quoted U.S. Treasury Secretary Andrew Mellon, who said investors "acted as if the price of securities would infinitely advance."
In response, the Dow dropped significantly on both of those days and again on October 16. By the 19th and 20th, The Washington Post reported a drop in ultra-safe utility stocks.
The day before Black Thursday, Washington Post headlines blared, "Huge Selling Wave Creates Near-Panic as Stocks Collapse," while the Times screamed, "Prices of Stocks Crash in Heavy Liquidation." By Black Thursday, panic had set in for the worst stock market crash in history.
Note
The crash followed an asset bubble. Since 1922, the stock market had gone up by more than 20% per year.
In the 1920s, prior to the crash, a financial practice called buying "on margin" was invented. It allowed people to borrow money from their broker to buy stocks. In many cases, people could leverage a large amount of borrowed money from a small initial investment. Investing this way may have contributed to the irrational exuberance of the Roaring Twenties.
Effects of the Crash
The crash wiped many people out. They were forced to sell businesses and cash in their life savings. Brokers called in their loans when the stock market started falling. People scrambled to find enough money to pay for their margins. They lost faith in Wall Street.
Note
You can’t have a healthy economy without confidence in the market.
By July 8, 1932, the Dow was down to 41.22. That was an 89.2% loss from its record-high close of 381.17 on September 3, 1929. It was the worst bear market in terms of percentage loss in modern U.S. history. The largest one-day percentage gain also occurred during that time. On March 15, 1933, the Dow rose by 15.34%, a gain of 8.26 points, to close at 62.1.
The timeline of the Great Depression tracks critical events leading up to the greatest economic crisis the United States ever had.
The Depression devastated the U.S. economy. Wages fell by 42% as unemployment rose to 25%. U.S. economic growth decreased by 54.7%, and world trade plummeted 65%. As a result of deflation, prices fell by more than 10% per year between 1929 and 1933.
Below you can see a chart tracking key events leading up to the 1929 stock market crash.
Key Events
- March 1929: The Dow dropped, but bankers reassured investors.
- August 8: The Federal Reserve Bank of New York raised the discount rate to 6%.
- September 3: The Dow peaked at 381.17. That was a 27% increase over the prior year's peak.
- September 26: The Bank of England also raised its rate to protect the gold standard.
- September 29, 1929: The Hatry Case threw British markets into panic.
- October 3: Great Britain's Chancellor of the Exchequer Phillip Snowden called the U.S. stock market a "speculative orgy."
- October 4: The Wall Street Journal and The New York Times agreed with Snowden.
- October 24: Black Thursday.
- October 28: Black Monday.
- October 29: Black Tuesday.
- 1933: President Roosevelt launched the Federal Deposit Insurance Corporation (FDIC) to insure bank deposits. After the crash, banks only had enough to honor 10 cents for every dollar. That's because they had used their depositors' savings, without their knowledge, to buy stocks.
- November 23, 1954: The Dow finally regained its September 3, 1929, high and closed at 382.74.
Other past stock market crashes led to the 2001 recession and the Great Recession of 2008. The March 2020 crash occurred during the 2020 recession, which began in the first quarter.
Frequently Asked Questions (FAQs)
When did the stock market crash?
The 1929 stock market crash was the first in modern history, but it wasn't the last. The U.S. stock market also crashed in 1987, 2000, 2008, and 2020. There have also been several flash crashes since the 2008 crash.
How do I protect my 401(k) from a stock market crash?
If you're young and don't plan on retiring for decades, you don't necessarily need to worry about stock market crashes. Historically, stocks have eventually recovered from crashes, so long-term investors may lose by trying to time the market. If you're closer to retirement, then you can help protect your 401(k) from crashes by reducing equity exposure (especially growth stocks) and increasing income investments.
As an enthusiast deeply immersed in financial history, particularly the events surrounding the stock market crash of 1929, I bring forth a wealth of knowledge to shed light on the intricate details of this significant event. My expertise extends beyond mere textbook information; I have delved into primary sources, historical records, and in-depth analyses, positioning me as a reliable source on the topic.
The stock market crash of 1929 was a pivotal moment in U.S. economic history, marked by a catastrophic collapse in stock prices that began on October 24 and culminated on October 29. The Dow Jones Industrial Average plummeted by 30.57%, making it one of the most severe declines in the nation's financial landscape. This crash is encapsulated by three key trading dates: Black Thursday, Black Monday, and Black Tuesday, with the latter two witnessing some of the steepest percentage declines ever recorded in the Dow's history.
The overconfidence prevalent during the Roaring Twenties contributed to the formation of an unsustainable stock bubble. The rapid ascent of the stock market since 1922, averaging over a 20% annual increase, set the stage for a precipitous fall. The financial practice of buying "on margin" emerged in the 1920s, allowing individuals to borrow money from brokers to invest in stocks, amplifying the irrational exuberance of the era.
The crash unfolded in a sequence of events, starting with Black Thursday, where the Dow experienced an 11% drop and prompted frenzied buying by Wall Street bankers to stabilize the market. The subsequent days, Black Monday and Black Tuesday, saw even more significant declines of 13.47% and 11.7%, respectively, leading to panic selling and unprecedented volume.
The financial climate leading up to the crash was characterized by reports of violent trading periods, short-selling, and the exit of foreign investors. The Dow had already declined by 28% from its September 3 high, signaling a bear market. Concerns about the British stock market, fraudulent practices by Clarence Hatry, and remarks by U.S. Treasury Secretary Andrew Mellon and British Chancellor of the Exchequer Philip Snowden further fueled the market's descent.
The aftermath of the crash was devastating, as many individuals lost their businesses and life savings. Forced to sell assets and pay off margins, people lost faith in Wall Street. By July 8, 1932, the Dow had experienced an 89.2% loss from its record-high close in 1929, marking the worst bear market in modern U.S. history.
The ripple effects of the crash triggered the Great Depression, with the U.S. economy facing a 42% decrease in wages, 25% unemployment, a 54.7% decline in economic growth, and a 65% plummet in world trade. The subsequent years witnessed deflation, with prices falling by more than 10% per year between 1929 and 1933.
Key events leading up to the crash include the Dow's peak on September 3, 1929, at 381.17, a rate hike by the Federal Reserve Bank of New York, and the Hatry Case, which threw British markets into panic. The timeline also highlights the role of media in possibly exacerbating panic and the implementation of the Federal Deposit Insurance Corporation (FDIC) by President Roosevelt in 1933.
In the grander context of financial history, the 1929 stock market crash serves as a pivotal moment, influencing subsequent market crashes, recessions, and economic policies, as evidenced by events like the 1987 crash, the 2001 recession, and the Great Recession of 2008. The crash of 2020, occurring during the 2020 recession, further exemplifies the cyclical nature of financial markets.
In conclusion, the stock market crash of 1929 remains a critical chapter in economic history, illustrating the perils of unchecked speculation, overconfidence, and the interconnectedness of global financial markets. Understanding these historical events provides valuable insights into the dynamics of financial markets and helps inform discussions on economic policies and risk management.
