October 29, 1929 – The stock market crashed as over 16 million shares of stock were dumped by panicked sellers amid tumbling prices. The Great Depression followed in America, lasting until the outbreak of World War II.
The decade following the end of WWI was aptly known as the “Roaring 20’s” American industry was booming, Americans flocked to the cities for jobs, and everyone, it seemed, was getting rich. As the 1920’s advanced, every year seemed to bring a doubling of industrial production, including, steel, automobiles, and buildings. Farms were producing record harvests of wheat, and new areas of the country, such as Florida, were witnessing a record breaking housing boom.
Along with the tangible signs of wealth building came an exponential growth of the US stock market. As companies recorded record profits, scores of ordinary Americans piled into the stock market, hoping to cash in on those profits with shares in the companies making them. These new investors piled all of their savings into the market, hoping to get rich overnight. They also borrowed heavily to buy stocks; without any regulations concerning the buying of shares on credit, it was not uncommon for brokers to lend investors the bulk of the cost of a stock (known as “margin investing”).
This buying of stocks on credit, of course, caused the stock market to rise even further, and as the market rose, more and more people joined in the margin buying frenzy, driving the market to ever new heights. By the summer of 1929, there was more stock owned on margin than the total amount of currency in circulation in the entire country. Few worried about the rising debt, as everyone was caught up in the mistakenly exuberant belief that the market would continue to rise indefinitely. A classic bubble had developed, and all that was necessary was for a needle to pop it.
That needle seemingly came from several directions all at once. In the fall of 1929 wheat prices began to fall, despite Congress’ efforts to provide aid to farmers to stabilize prices. At the same time, steel, automobile and housing sales also began to slow. All of these factors, occurring nearly simultaneously, caused the stock market to pause, and then begin to drop. In September the market dropped 10% from its high (the DOW had reached 381 on September 3rd). Selling continued into October, and then, the week of October 21st, selling accelerated.
On Thursday, October 24th, the market lost 11% of its value at the opening bell, prompting a group of wealthy bankers to act to stave off disaster. The group placed orders to buy large blocks of stock of several large companies well above their current prices, hoping to rally the market upward. The tactic worked, and for the rest of that Thursday and the next day, the market rallied. It appeared as if the emergency had ended.
Over the weekend, however, the national mood soured again. On Monday, October 28th, investors with stocks on margin decided to cut their losses and sell. The market dropped 13%. The sell-off culminated on Tuesday, October 29th, 1929, a date known as “Black Tuesday.” On that day a record number of shares were sold (a record that would stand for 40 years). Some shares offered had no buyers at any price, effectively making them worthless. The market dropped another 12%, with the DOW closing at 230. Panic had set in.
For the next year the market wildly fluctuated. In November the DOW dropped to 198, only to rally to 294 in April of 1930. At that point, however, the market was done. By July of 1932 the DOW reached its nadir of 41 – nearly a 90% loss from its high. It would be 25 years before the market reached its 1929 high again.
The Crash of 1929 ushered in the global economic collapse known as The Great Depression. While the crash alone did not “cause” the Great Depression, it certainly didn’t help. In the 1930’s, worldwide GDP fell by as much as 15% while unemployment rose as high as 33% in some countries. Banks closed and millions lost all of their savings. It would not be until the late 1930’s and early 1940’s that the Great Depression would end, replaced by WW2 and the industrial production that it required.