The Crash That Launched the Great Depression
The stock market crash of 1929 was a collapse of stock prices that began on Oct. 24, 1929. By Oct. 29, 1929, the Dow Jones Industrial Average had dropped 24.8%, marking one of the worst declines in U.S. history.1 It destroyed confidence in Wall Street markets and led to the Great Depression. https://294d971d33b0a033e9bb29daeb806a65.safeframe.googlesyndication.com/safeframe/1-0-37/html/container.html
- The stock market crash of 1929 was one of the worst in U.S. history.
- The three key trading dates of the crash were Black Thursday, Black Monday, and Black Tuesday. The latter two days were among the four worst days the Dow has ever seen, by percentage decline.
- Overconfidence during the Roaring Twenties created an unsustainable stock market bubble.
- Overnight, many people lost their businesses and life savings, setting the stage for the Great Depression.
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.https://294d971d33b0a033e9bb29daeb806a65.safeframe.googlesyndication.com/safeframe/1-0-37/html/container.html
On Friday, October 25, the positive momentum continued. The Dow rose 0.6% to 301.22.https://294d971d33b0a033e9bb29daeb806a65.safeframe.googlesyndication.com/safeframe/1-0-37/html/container.html
On Black Monday, October 28, the Dow fell 13.47% to 260.64.
On Black Tuesday, October 29, the Dow fell 11.7% to 230.07.2 Panicked investors sold 16,410,030 shares.3https://294d971d33b0a033e9bb29daeb806a65.safeframe.googlesyndication.com/safeframe/1-0-37/html/container.html
Black Monday and Tuesday were among the four worst days in Dow history. They were followed by two subsequent crashes:https://294d971d33b0a033e9bb29daeb806a65.safeframe.googlesyndication.com/safeframe/1-0-37/html/container.html
- A 12.93% drop during the 2020 stock market crash.
- A 22.61% decline on Black Monday 1987.4
The Dow was already down 30% from its September 3 high, according to S&P Dow Jones Indices. 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.”5
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.”6 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 more than 20% a year.6
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%.7 Investing this way contributed to the irrational exuberance of the Roaring Twenties.
The crash wiped people out. They 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 an 89.2% loss from its record-high close of 381.17 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 62.1.8
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%.9 10 U.S. economic growth decreased 54.7% and world trade plummeted 65%.11 As a result of deflation, prices fell more than 10% a year between 1929 and 1933.12
Below you can see a chart tracking key events leading up to the 1929 stock market crash. https://datawrapper.dwcdn.net/aZtAa/5/
- 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’s peak.
- 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.6
- October 3: Great Britain’s Chancellor of the Exchequer Phillip Snowden called the U.S. stock market a “speculative orgy.”5
- 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 382.74.8