Black Tuesday: Definition, Cause, Kickoff to Depression

The Worst Day in Wall Street's History

The Great Crash
Pandemonium ruled on the trading floor of the New York Stock Exchange on October 29, 1929.. Photo: Hulton Archive/Getty Images

Definition: Black Tuesday was October 29, 1929. Investors traded a record 16.4 million shares and lost $14 billion on the New York Stock Exchange. (That's $194 billion in 2016 dollars). It was the worst day in the history of Wall Street. It started the Great Depression because it signaled a complete loss of confidence in the U.S. financial system. It was the fourth and worst day in the stock market crash of 1929.

What Happened?

The moment the opening bell rang, the Dow Jones Industrial Average fell 8 points to 252.6. Panicked sellers were shouting "Sell! Sell!" so loudly that no one heard the bell ring. In a half hour, they sold three million shares and lost $2 million. 

As the day wore on, the Dow fell to 212.33. The ticker tape that announced stock prices was hours behind. That meant investors didn't know how much they were losing. They frantically called their brokers. When they couldn't get through, they sent telegrams. Western Union said its volume tripled that day.

Back then, traders physically wrote orders on pieces of paper. There were so many trades that the orders backed up, and were just stuffed into trash cans. Fistfights broke out, and one trader collapsed. He was revived and put back to work. The NYSE board were afraid that they would worsen the panic if they closed the market. 

The prominent banks of the day tried to stop the crash.

Morgan Bank, Chase National Bank, and National City Bank of New York bought shares of stocks. They wanted to restore confidence in the stock market. Instead, the intervention signaled the exact opposite. Investors saw it as a sign that the banks had panicked. When the market closed at 3 pm, it had lost 11% of its value, closing at 230.7.

(Source: The Crash of 1929, Time Magazine, October 29, 2008.) For more, see Timeline of the Great Depression.

What Caused Black Tuesday?

Part of the panic that caused Black Tuesday resulted from how investors played the stock market in the 1920s. They didn't have instant access to information like they do today. Stock prices weren't on the computer, they were shown via a ticker tape machine. This machine printed stock prices on a strip of paper. As stock prices dropped on Black Tuesday, panic ensued because no one knew how bad it was. That's because the ticker tapes literally could not keep up with the pace of falling stock prices. 

It was pandemonium on the floor of the stock exchange. Buyers roared and screamed. Some collapsed onto the floor when they got bad news about a stock price. Crowds formed outside of the New York Stock Exchange. The police were called to keep order.

The other reason for the panic was the new method for buying stocks, called buying on margin. Investors could place huge stock orders with only 10% or 20% down.

They used the money they borrowed from their brokers. When stock prices fell, the brokers called in the loans. Many people found their entire life savings wiped out to pay off the loan. Some of them realized what fools they had been. In despair, they jumped out of windows. The Roaring 20s was over. New York hotel clerks would cynically ask their incoming guests, "You want a room for sleeping or for jumping?"

Impact: How Black Tuesday Helped Cause the Great Depression

Black Tuesday was the last day of the stock market crash.  During that time, the Dow dropped 25%, and investors lost $30 billion. That was ten times more than the 1929 Federal budget, and more than the United States had spent on World War I. Stock prices continued to fall. They hit their 1929 bottom on November 13. By then, more than $100 billion had disappeared from the American economy. In today's terms, that was worth $1.3 trillion. The Dow didn't regain its pre-crash high until November 23, 1954. 

Black Tuesday's losses weren't enough to cause the Great Depression. They did, however, destroy confidence in the economy. In those days, people believed the stock market was the economy. What was good for Wall Street was thought to be good for Main Street. That loss of confidence created a run on the banks. People withdrew all their savings. The banks didn't have enough cash on hand and were forced to close. When they reopened, they only gave savers ten cents for every dollar. There was no Federal Deposit Insurance Corporation to insure people's savings.

Investors abandoned the stock market and started putting their money in commodities. Gold prices soared. At that time, the U.S. was on the gold standard and promised to honor each dollar with its value in gold. As people began turning in dollars for gold, the U.S. government began to worry it would run out of gold. 

The Federal Reserve thought it would come to the rescue by increasing the value of the dollar. How did it do this? By raising interest rates, which reduced liquidity to businesses. Without funds to grow, businesses started laying off employees. That created a vicious downward economic spiral that became the Great Depression. For more, see Effects of the Great Depression.

Black Tuesday and the 1929 Stock Market Crash

DayDateOpen Close%# SharesComment
Black ThursdayOct 24305.85299.47 -2%12,894,650 Record # shares traded. Banks bought shares to prop up prices.
FridayOct 25299.47301.22  1%  6,000,000Bank intervention worked.
SaturdayOct 26301.22298.97 -1% Half-day of pessimistic trading.
Black MondayOct 28298.97 260.64 -13%  9,250,000Savvy buyers thought they could buy low. They lost millions.
Black TuesdayOct 29260.64230.07-12% 16,410,000Bank intervention worsened the panic. 

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