The Stock Market Crash of 1929
The Stock Market Crash of 1929 – Did You Know . . .
Trading stocks and shares on the stock market can be seen as a quick and easy way to make money. However this isn’t always the case, historically stock market crashes have occurred throughout 20th Century history. A stock market crash is a sudden decline in stock prices across a large section of the stock market.
A stock market crash generally occurs after a period of panic selling. Generally in periods of high economic optimism, stock prices can become higher than their true value, if this optimism fades, market participants become likely to sell stocks at a lower value. As stock values decrease, panic sales can set in, causing the stock market to crash.
The stock market crash of 1929, also known as the Wall Street Crash 1929 was the largest stock market crash in the history of the United States. After a decade of huge prosperity and predictions of permanently high share values, a decline in real estate prices culminated in the Stock Market showing signs of instability in the summer of 1929.
The stock market had risen to a record high in September 1929 due to public investors being infatuated with rising prices (and profits) and thus ploughing huge amounts of money into stocks. Investment trusts (those who bought stocks and shares on behalf of their members) were becoming more and more widely used also. Due to how lucrative buying and selling shares appeared, investors were routinely borrowing more than two thirds of the face value of stocks they were buying. When the stock market began to show signs of instability, those who had borrowed began to fear they wouldn’t get back what they had paid and began to panic sell.
On Tuesday October 29, 1929, or “Black Tuesday” as it is more commonly known, stock prices plummeted and continued to do so for a month afterwards. The Dow Jones Industrial Average (an indicator of stock prices based on US stocks of 30 large industrial companies) fell 38 points to 260. This was a 12.8% drop in one day as panic selling kicked off. Over the course of Tuesday and Wednesday, the Dow Jones Industrial Average dropped 23% in total, and dropped 40% by the week of November 11th from the September high.
The Stock Market crash of 1929 was the major event that lead to the Great Depression, a severe economic depression, that spread through developed countries globally and lasted for over 10 years. Effects of the Great Depression were suffered worldwide. In the USA unemployment rose to 25%, while it exceeded 30% in other developed countries. Personal income, tax revenue, profit, and international trade dropped by over half of their previous value.
The Stock Market crash of 1929 wasn’t the only market crash in the 20th century though. The Dow Jones Industrial Average dropped 22.6% on “Black Monday” in the Stock Market Crash of 1987, the greatest single day loss in history. The stock market crash in 2008 wasn’t far behind, either, with a 21% drop in a week, 7% less than 1987. That said, no single stock market crash has ever had such devastating effects as 1929 as yet.
The 1929 Stock Market Crash
1929 Stock Market Crash – What Exactly Happened?
The ‘roaring twenties‘ was a decade of huge wealth and prosperity in the United States of America. Values of stocks and shares on the Stock Market were gradually rising before hitting a peak in September 1929.
Because of high stock prices, public investors continued to speculate, with large return on investment being the norm throughout the decade. Many public investors were borrowing to buy stocks. Investment trusts were having a massive surge in business, with many investors choosing to let professionals buy stocks and shares on their behalf. Economists predicted that the high share values were there to stay, this caused investors to keep borrowing and buying.
After hitting its peak in September 1929, the stock market began to show signs of instability. This instability was a correlation with the fall in real estate prices. The instability caused investors to begin selling their stocks as quickly as possible, in order to minimise loss. Mass selling resulted in “Black Thursday” and “Black Tuesday”, Thursday 24th October and Tuesday 29th October respectively, two days where there were huge volumes of trading and share prices dropped dramatically. Black Thursday could be signified as the start of the 1929 Stock Market Crash (Wall Street Crash 1929).
A stock market crash is a massive decline in stock prices. This occurs when there is a huge number of sellers and therefore more demand to sell than to buy, causing prices to fall dramatically. The Dow Jones Industrial Average, a measure of overall stock prices, fell a massive 12.8% on Black Tuesday and a further 11.7% on Wednesday. By November 11th the Dow Jones Industrial Average had dropped 40% from the September high.
The 1929 was the most significant event in the lead up to the 1929 Great Depression. The Great Depression lasted for over 10 years and was a time of significant economic hardship, and effects of the great depression were felt both in the USA and worldwide.
The 1929 Stock Market crash isn’t the only stock market crash in 20th century history but is certainly the worst. The stock market crash of 1987 and the stock market crash of 2008 run a close 2nd and 3rd respectively. The single worst daily loss in history was actually “Black Monday” in the 1987 crash, which saw the The Dow Jones Industrial Average drop by 22.6%. Despite this, the 1987 or 2008 crash didn’t have the same global effects as the 1929 crash.
The 1929 stock market crash and great depression
The Great Depression & the Stock Market Crash of the Century
The 1929 Great Depression was the worst worldwide economic depression in 20th century history. The depression originated in the United States but quickly spread worldwide. The depression lasted until the late 30’s / early 40’s when things finally began to pick up.
Some people credit the blame the 1929 Great Depression on the 1929 Stock Market Crash (Wall Street Crash 1929). Other say that the Stock Market Crash of 1929 was a symptom of the Great Depression rather than a cause.
The Stock Market Crash of 1929 was a result of mass panic selling of stocks, this lead prices to plummet. Signs of market instability were seen slightly before “Black Thursday” (Thursday October 25th 1929, the first day of mass stock sales in 1929) and “Black Tuesday” the notorious day when the Dow Jones industrial average (An overall measure of stock prices) dropped over 12%.
Prior to the Stock Market slumping in late October 1929, the market was actually thriving. Generally prices of stocks were on the up throughout the decade, peaking in September 1929. It was at this point that market instability started to set in. Because of prices being constantly on the up previously in the year, there was huge levels of public investment, many people would borrow over two thirds of the face value of the shares they were purchasing. This level of borrowing was simply considered normality with an economy thriving.
When the market began to look unstable, those who had borrowed to purchase shares wanted to sell as quickly as possible to make their money back. This caused panic selling to occur. Panic selling is when lots of shareholders are looking to sell at the same time and prices drop massively due to the excess supply. When prices begin to drop, even more people decide to sell in order to maximise their return in fear that share value is going to drop further.
Investors inevitably lost money. Those who had lost money cut their expenditure by 10% in order to pay back loans and restore savings. The massive cut in public expenditure caused interest rates to drop to low levels, loss of jobs and a decline in worldwide trade. Cities all around the world, particularly those who relied on heavy industry, were hit very hard. Many people were defaulting on loan payments and banks began to shut down.
Stock market crashes since, such as the stock market crash of 1987 and the stock market crash of 2008, haven’t caused such a global economic crisis as the 1929 Great Depression. The single biggest loss in one day on the stock market was “Black Monday” in 1987, where the Dow Jones Industrials Average dropped over 22%. Despite this, the Stock Market Crash of 1929 remains the worst in history.
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