Stock Market Crash of 1929 Facts, Causes, and Impact.

Stock Market Crash of 1929 Facts, Causes and Impact.

The stock market crash of 1929 was a collapse of stock prices that began on Oct. 24, 1929. By Oct. 29, 1929, the Dow Jones Industrial Average had dropped 24.8%, marking one of the worst declines in U.S. history.

What Happened

The first day of the crash was Black Thursday. The Dow opened at 305.85. It immediately fell 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 0.6% to 301.22.

On Black Monday, October 28, the Dow fell 13.47% to 260.64.

On Black Tuesday, October 29, the Dow fell 11.7% to 230.07. Panicked investors sold 16,410,030 shares.

Black Monday and Tuesday were among the four worst days in Dow history. They were followed by two subsequent crashes:

• A 12.93% drop during the 2020 stock market crash.
• A 22.61% decline on Black Monday 1987.

Causes

Earlier in the week of the stock market crash, the New York Times headlines fanned the panic with articles about margin sellers, short-selling, and the exit of foreign investors.

The Dow was already down 30% 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 he 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, The 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. Everyone invested, thanks to a financial invention called buying "on margin." It allowed people to borrow money from their broker to buy stocks. They only needed to put down 10%. Investing this way contributed to the irrational exuberance of the Roaring Twenties.

Effects

The crash wiped 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.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 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 42% as unemployment rose to 25%. U.S. economic growth decreased 54.7% and world trade plummeted 65%. As a result of deflation, prices fell more than 10% a year between 1929 and 1933.