Stock Market Crash of 1929 Facts, Causes, and Impact

The Worst Crash in U.S. History

Man Selling Roadster After Stock Market Crash
••• Photo: Bettman/Getty Images

The stock market crash of 1929 was a four-day collapse of stock prices that began on October 24, 1929. It was the worst decline in U.S. history. The Dow Jones Industrial Average dropped 25%. It lost $30 billion in market value.

The 1929 stock market crash lost the equivalent of $396 billion today.

It was more than the total cost of World War I. It destroyed confidence in Wall Street markets and led to the Great Depression

When did the Great Depression start? Many people think it started with the October 24 crash. But it really began months earlier, when the market fell 10% in a March correction.

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. By the end of the day, the Dow was down just 2%.

On Friday, October 25, the positive momentum continued. The Dow rose 1% to 301.22. A short trading day on Saturday removed that gain. The Dow closed at 298.97, according to MeasuringWorth.com.

On Black Monday, October 28, the Dow fell 13% to 260.64.

The next day was Black Tuesday. The Dow fell 12% to 230.07. Panicked investors sold 16,410,310 shares.

Causes

The week of the stock market crash began with another down day. On Tuesday, 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 20% from its September 3 high, according to Yahoo Finance DJIA Historical Prices. 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. 

The crash followed an asset bubble. Since 1922, the stock market had gone up by almost 20% a year. 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 10-20%. Investing this way contributed to the irrational exuberance of the Roaring Twenties.

Effects

The crash wiped people out. There 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.

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 a 90% loss from its record-high close of 381.2 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 62.10.

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 50% and world trade plummeted 65%. As a result of deflation, prices fell 10% a year between 1929 and 1933.

Below you can see a chart tracking key events leading up to the 1929 stock market crash.

Key Events Leading to the Stock Market Crash of 1929

  • 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.
  • 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 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, closing at 383.

The Bottom Line

The stock market crash of 1929 heralded the Great Depression. Three key trading dates of the crash are all aptly called Black Thursday (October 24), Black Monday (October 28), and Black Tuesday (October 29).

Irrational exuberance in stock market investments during the Roaring Twenties created an unsustainable asset bubble. When it burst, the stock market collapsed. Panic from loss of confidence in the market fueled the huge, abrupt percentage drops in the Dow. Banks, which used deposits to invest in stocks, suddenly found themselves failing as well. Many companies went bankrupt.

Overnight, many people lost their businesses and life savings. The widespread, devastating economic effects of the crash signaled the onset of the Great Depression, the worst U.S. economic crisis in history.

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Article Sources

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  2. EH.net. “The 1929 Stock Market Crash,” Accessed Nov. 7, 2019.

  3. MeasuringWorth.com. “Daily Closing Values Of The Dow Jones Average In The United States, May 2, 1885 to Present,” Accessed Nov. 7, 2019.

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  6. Politico. “Dow Jones Falls To Its Lowest Point, July 8, 1932,” Accessed Nov. 7, 2019.

  7. Encyclopaedia Britannica. “Philip Snowden, Viscount Snowden,” Accessed Nov. 7, 2019.

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