Reliving The 1929 Wall Street Crash

Three 'Black' days are associated with the historic US stock market crash of 1929. This crash was significant because it was the first of its kind and catalysed an even greater economic shock.

So, let's go way, way back in time to see how the crash happened and why it continues to be a topic of debate.

Background

The 'Crash of 29' or 'Great Crash' occurred between 24-29 October 1929 on the New York Stock Exchange (NYSE). Analysts regard it as the greatest US crash ever and among the most popular in history.

Before the crash, America was in the 'Roaring Twenties' era, a period of tremendous economic growth and social exuberance. It was roughly a year after the end of World War I, when people believed that good times were coming for good.

Companies were more profitable than ever, and unemployment was almost non-existent. In short, the US became wealthier with each passing year from 1920. We know what happens when a country prospers economically: citizens get immersed in consumer culture and find new, often costly 'hobbies.'

One of these was speculating in stocks with margin or leverage, which is still prevalent today. People bought equities in the hopes of a bull market without real fundamentals.

Yet, the economy gradually changed and reached a stumbling point by 1929. The first problem was that the rising stock values gave companies more money, but this led to excess production and oversupply.

This combo forced businesses to sell their products at a loss, resulting in ever-declining share prices. Another contributing factor was the international tariffs at the time. Finally, buying on margin resulted in excessive debt, leading to margin calls and banks liquidating trading portfolios.

24-29 October 1929: days of the crash

24 October 1929, or 'Black Thursday', was the first day of severe panic since stocks fell by about 11% due to an intense sell-off. Wall Street bankers got together to calm the storm by buying some of this stock, causing the market to rebound (but only temporarily).

This effort couldn't contain the further panic and margin calls that happened on the 28th ('Black Monday') and 29th ('Black Tuesday') of October 1929. Experts measure the crash's impact by looking at the biggest index then, the Dow Jones Industrial Average (DJIA).

Black Monday saw the Dow fall by 13%, while Black Tuesday resulted in a further 12% nose dive. The latter day is the most significant and the peak of the crash, where traders sold 16.4 million shares on the

Below is a picture of the Dow's monthly chart highlighting its price during the decline.

All in all, it was one of the worst periods for stocks ever. Billions of dollars in value were lost, with many companies filing for bankruptcy. Many other parts of the world, especially Europe, also felt the effects of the crash.

Sadly, it was only the beginning of a further decline that would last for years.

The aftermath

Stock prices did enjoy a rally for a few months after Black Tuesday up as, of course, they were dirt cheap. But this didn't matter much as the US was in the middle of another crisis: the Great Depression (1929-1941).

Of course, the crash isn't the sole reason for this economic shock. The Great Depression began in August 1929. Yet, the crash left many citizens with empty pockets and destroyed the country's national wealth.

The US has long been a global powerhouse. Even during this era, if America sneezed, the whole world caught a cold. The Great Depression had far-reaching consequences and affected about every mainstream nation at the time.

Final thoughts

Since the Crash of 29, the US stock market has experienced crashes in 1987, 2008, and, most recently, 2020. You would think that we didn't learn, right? While speculation is usually a common denominator, each crash had unique circumstances compared to what happened in 1929.

Firstly, the concept of long-term investing was unknown. Exchanges were not advanced enough then to handle 'panic' volume and couldn't halt trading when needed. Banks do a lot more than lending money for margin trading.

Ultimately, we are unlikely to see something like the 1929 crash again.