Stock Market Crash of 1929 Facts, Causes, and Impact
The Worst Crash in U.S. History
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 percent. It lost $30 billion in market value. That’s 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. For more, see When Did the Great Depression Start?
The first day of the crash was Black Thursday. The Dow opened at 305.85. It immediately fell 11 percent, 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 percent.
On Friday, the positive momentum continued. The Dow rose 1 percent to 301.22. A short trading day on Saturday removed that gain. The Dow closed at 298.97.
On Black Monday, October 28, the Dow fell 13 percent to 260.64.
The next day was Black Tuesday. The Dow fell 12 percent to 230.07. Panicked investors sold 16,410,310 shares. (Source: Samuel H. Williamson, "Daily Closing Value of the Dow Jones Average, 1885 to Present," MeasuringWorth, 2016. "Stock Market Crash of 1929," History.com, November 25, 2016.)
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 percent from its September 3 high. 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. (Source: "The 1929 Stock Market Crash.")
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 nearly 20 percent 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 percent. Investing this way contributed to the irrational exuberance of the Roaring Twenties. (Source: Dow figures taken from Yahoo Finance DJIA Historical Prices.)
The crash wiped people out. There were forced to sell businesses and cash in their life savings. That's because 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, 1933, the Dow was down to 41.22. That was a 90 percent 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 percent, a gain of 8.26 points, to close at 62.10.
It took 25 years for the Dow to regain its September 3 high. Between 1935 and 1940, the Dow fluctuated. It reached high of 194 in early 1937 before falling to 98 a year later. For more, see Timeline of the Great Depression.
The Depression devastated the U.S. economy. Wages fell 42 percent as unemployment rose to 25 percent. U.S. economic growth decreased 50 percent and world trade plummeted 65 percent. That's because prices fell 10 percent a year, a result of deflation.
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 percent.
- September 3: The Dow peaked at 381.17. That was a 27 percent 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.