Black Tuesday, Its Causes and How It Kicked Off the Depression
The Worst Day in Wall Street's History
Black Tuesday was the fourth and last day of the stock market crash of 1929. It took place on October 29, 1929. Investors traded a record 16.4 million shares. They lost $14 billion on the New York Stock Exchange, worth $206 billion in 2019 dollars.
During the four days of the crash, the Dow Jones Industrial Average dropped 25% and investors lost $30 billion. That was 10 times more than the 1929 federal budget. It was more than the United States spent on World War I.
After the crash, stock prices continued falling. On November 13, 1929, they hit their bottom for the year. By then, more than $100 billion had disappeared from the American economy. In today's terms, that's worth $1.5 trillion.
Black Tuesday kicked-off the Great Depression. What followed was a complete loss of confidence in the U.S. financial system. The Dow didn't regain its pre-crash high until November 23, 1954.
The moment the opening bell rang, the Dow 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 3 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 of telegrams tripled that day.
Back then, traders physically wrote orders on pieces of paper. There were so many trades that the orders backed up. Traders just stuffed them into trash cans. Fistfights broke out, and one trader collapsed. Once revived, he was put back to work. Members of the NYSE board were afraid to close the market because it might make the panic even worse.
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. At 3 p.m., the market closed at 230.7. It had lost 11% of its value.
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 via the internet. Stock prices were printed by a ticker tape machine onto a strip of paper. As share prices dropped the ticker tapes literally could not keep up with the pace. Panic ensued because no one knew how bad it was.
It was pandemonium on the floor of the stock exchange. Buyers roared and screamed. Some collapsed onto the ground when they got bad news about a stock price. Crowds formed outside of the NYSE. 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% to 20% down. They used the money they borrowed from their brokers. When stock prices fell, the brokers called in the loans. Many people found paying off the loans wiped out their entire life savings.
In despair, some even jumped out of windows. The Roaring Twenties were over. New York hotel clerks would cynically ask their incoming guests, "You want a room for sleeping or for jumping?"
How It Helped Cause the Great Depression
Black Tuesday's losses destroyed confidence in the economy. That loss of confidence led to the Great Depression. 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.
The stock market crash created bank runs. People withdrew all their savings at once. Many banks didn't have enough cash on hand and were forced to close. There was no Federal Deposit Insurance Corporation to insure savings.
Investors abandoned the stock market and started putting their money in commodities. As a result, gold prices soared. At that time, the United States 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 tried to come to the rescue by increasing the value of the dollar. It did this by raising interest rates, which reduced liquidity to businesses. But, without funds to grow, companies started laying off employees. That created a vicious downward economic spiral that became the Great Depression.
|Day||Date||Open||Close||Percent Change||Shares Traded|
|Black Thursday||Oct 24||305.85||299.47||-2%||12,894,650|
|Black Monday||Oct 28||298.97||260.64||-13%||9,250,000|
|Black Tuesday||Oct 29||260.64||230.07||-12%||16,410,000|