Moneyzine
/Investment Guides /The Stock Market Crash of 1929

The Stock Market Crash of 1929

Moneyzine Editor
Author: 
Moneyzine Editor
4 mins
September 21st, 2023
Advertiser Disclosure

Nearly every investor has heard of the Stock Market Crash of 1929. For market historians, it's important to understand the circumstances that existed in 1929. A deeper understanding of what happened in the past can possibly prevent this type of event from occurring in the future.

Market Conditions Prior to the Crash of 1929

Following WWI, the United States experienced a broad economic expansion that was fueled by new technologies and improved production processes. Between the years 1927 and 1929, industrial production output increased 25%. Electricity was more widespread and the purchases of electrical appliances, as modern conveniences, took hold. Ford had created assembly lines that allowed cars to be produced at lower cost. The Roaring 20s were an age of rebirth for most Americans.

The stock market benefited a great deal from the expanding economy. From 1926 to 1929, the market indices moved up nearly 400%. Investors frequently talked about the great wealth that could be made in the stock market. Relaxed credit terms from banks and stock brokers fueled the buying frenzy.

So how did this roar come to a screeching halt? What exactly contributed to, or caused, the great stock market crash of 1929?

Events Leading up to the 1929 Stock Market Crash

Many people blamed investors for taking speculative approaches to the market, and driving stock prices well in excess of fundamental values. But was that really true? Let's take a quick look at the three most infamous days of that era.

October 24, 1929: Black Thursday

The stock market crashed over a period of five days. The first sign of trouble was on Black Thursday - October 24th, 1929. At that time, the volume on the stock exchange was around 4 million shares each trading day. But on Black Thursday, a record 12.9 million shares were exchanged.

The systems for tracking the market prices could not keep up with trading volume, and that may have contributed to panic selling on that day. At one point, ticker tapes were running nearly 90 minutes behind the market. By the end of the day, the market had fallen 33 points or around 9%.

October 28, 1929: Black Monday

Following Black Thursday, the market took back some of the loss on Friday. This led to a sense of security over the weekend, as investors felt the market could rebound. However, market conditions quickly deteriorated again on Black Monday - October 28th, 1929 - and high trading volumes once again put pressure on the flow of information.

On Black Monday, trading volumes were near 9.25 million shares, and market confidence declined sharply. By the end of the day, the market was down another 13%.

October 29, 1929: Black Tuesday

Black Tuesday - October 29th, 1929 - is the day that most historians agree dealt the final blow to the Roaring 20s, and was the starting point of the Great Depression. On Black Tuesday, a record 16.4 million shares exchanged hands. The ticker tape machines fell behind by nearly 3 hours. With all hope of a market recovery now gone, panic selling continued and the market fell another 12%.

Recovering from the 1929 Stock Market Crash

Over the next month the market continued to decline sharply, however, the market would not bottom out until July 1932, when the Dow hit 41 from a high of 381 in 1929. Overall, the market would see a decline of nearly 90%. Even as the market started to rise in 1932, it would take another 22 years before the Dow would climb above the levels seen in 1929.

Why Did the Market Crash?

Interestingly, economists that have later examined the fundamentals from the 1920s believe there was not a stock market bubble ready to burst by 1929. In fact, most of the stock values had merely tracked the rise in expected dividend payments. The economy was expanding rapidly, and companies were enjoying this expansion. Dividends were on the rise and were expected to continue to increase in the coming years.

The stock market continued to track the economy following the crash of 1929, this time in a negative direction. Since consumer outlook was decidedly pessimistic, the economy contracted sharply. Companies were hard hit by the decrease in consumer spending, and this trend would continue for nearly three years.

Apart from the panic selling on those few days in October of 1929 that would cause sharp price declines in common stock, there was nothing unusual or "inflated" about stock prices in the days preceding or following the stock market crash of 1929. Panic selling brought the market to the ground. The simple laws of supply and demand were in place. With no one left willing to buy stocks, and everyone trying to sell at the same time, the market had nowhere to go but down.


About the Author - The Stock Market Crash of 1929


Explore Investing Further

Trading has never been easier, thanks to the rise of online platforms that enable you to buy and sell various assets at the click of a button. But with so many options available, it can be challenging to decide which platform is right for you.
Looking for a way to avoid swap fees while trading forex?
Below listed are the small reviews of the top 10 ETF brokers available across the United States.
Our top beginner's pick for copy trading is eToro. Read on for more details, plus seven good alternatives.
Swing trading stocks can be a great way for investors to take advantage of short-term stock market movements and gain significant returns. If you're interested in swing trading, the key to success lies in selecting the right stocks to buy and sell quickly for a profit.
The table below lists the best stock picks under $2, listed on public exchanges.
The table below lists the best stock picks under $1, listed both on public and OTC exchanges.
This section will highlight the best EV-trading penny stocks available in the United States.
The demand for sustainable energy has grown rapidly in recent years. This has resulted in increased scrutiny of the automotive market. As a result, the electric vehicle (EV) industry has made significant advancements.
Intelligent Bio Solutions Inc. is a life sciences company, founded in 2016 with headquarters in New York and is engaged in performing diagnostic tests, real-time monitoring, and non-invasive surgery for its patients. The firm has developed a CoV-2 Biosensor, which can be used in RNA virus detection.
Hour Loop was founded in 2013 with headquarters in Redmond, Washington. It’s an online retailer involved in e-commerce in the United States that hit the public markets on Jan 7th of 2022. The company sells home/garden decor, electronic products, kitchenware, and apparel through walmart.com, amazon.com, and hourloop.com.

Related Content

Are You a Financial Disaster? The Real State of Your Finances
Have you ever heard the saying, “If you don’t have a goal, then you’ll wind up hitting it with amazing accuracy.”? In other words, if you have no idea where you want to be in your future life, then it really doesn’t matter what you do because wherever you end up will match your goal…which apparently was never important enough for you to think about in the first place.
March 13th, 2024
DRIP Brokers: Best Brokers for Dividend Investing for March 2024
Reinvesting dividends could mean compound growth for your portfolio. But reinvesting them manually can be a hassle. This is why you could benefit from a dividend reinvestment plan (DRIP).
March 12th, 2024
11 Steps to Transform Your Finances (For Good This Time!!)
The money comes in…the money goes out…and at the end of each month you have very little to show for all your efforts. Then, after buckling down for a bit and saving here and there, it feels like you’ve gained a little traction…until another unexpected bill comes along and takes your bank account down to nothing (or probably more likely, racks your credit card back up to the max instead of down to zero like you were fighting for). It’s time to change this. Now is the time to transform your finances.
March 11th, 2024
How To Invest in Real Estate Without Becoming a Landlord
We all know that in order to build wealth and prepare for retirement, investing is the key. However, it can be hard to figure out what to invest in and how to put your money to good use. One of the most talked about ways to build wealth is owning property and being a landlord to bring in passive income. But what if you don’t want to do that? You can still invest in real estate!
March 6th, 2024
Investing In Nature: The Closest You'll Get To Your Money Growing On Trees
ESG (Environmental, Social, and Governance) has become a polluted word for many traders and investors - but that doesn't mean it's going completely away. Nor does that mean you can't profit from nature or sustainable practices. But there are some opportunities in the regenerative ag, conservation, and green real estate spaces.
February 29th, 2024

Contributors

Moneyzine 2024. All Rights Reserved.