The stock market crash of 1929 was one of the worst stock market crashes in the history of the United States. The value of stocks fell dramatically over the course of several days at the end of October. Many people lost all of their savings and ended up losing their homes. Businesses had to layoff employees or go bankrupt. The crash signaled the start of the Great Depression that would last for more than ten years.
Before the Crash
The 1920s (also called the Roaring Twenties) were a time of economic boom and business speculation. New industries such as automobiles and radios were changing the landscape and culture of America. People thought everyone was going to be rich and that the economy would never stop growing. This optimism caused wild speculation in the stock market. Between 1921 and 1929 the stock market had grown by 600% with the Dow Jones Industrial Average rising from 63 points to 381 points.
The crazy growth in the stock market wasn't based on reality, however. The economy could not continue to grow at such a rapid rate forever. In 1929 the economy began to slow down. At the end of October, panic gripped the stock market and people began to sell massive amounts of stock. The worst days were October 28th and 29th when values fell a total of 23%. These days became known as "Black Monday" and "Black Tuesday."
After the Crash
Although the market tried to rally, it couldn't recover. Over the course of a few months, the stock market fell around 40%. Many investors lost everything. It didn't reach the bottom until the summer of 1932 when it had dropped 89% from its peak. Billions of dollars of wealth had been erased and the country entered into a deep economic depression.
Major Causes of the Crash
The stock market crashed for a number of reasons. Here are a few of the major causes:
Wild speculation - The market had grown too fast and stocks were overvalued. The stocks were worth much more than the real value of the companies they represented.
The economy - The economy had slowed down considerably and the stock market didn't reflect it. Despite many signs that the economy was struggling, the market continued to rise.
People were buying stocks using credit - Many people were borrowing money to buy stocks (called "margin"). When the market began to fall, they had to sell quickly in order to pay their debts. This caused a domino effect where more and more people had to sell.
The Great Depression
The stock market crash signaled the beginning of the Great Depression that would last for ten years until 1939. During this period, unemployment rose to around 25%, banks failed across the country, and hundreds of thousands of businesses went bankrupt. While the stock market crash was not the only cause of the Great Depression, it did have a major impact.
When did the stock market recover?
The market reached rock bottom in 1932 and then made a mild recovery. It didn't recover all the way to back to its peak value of 1929 until the middle of the 1950s.
Interesting Facts About the Stock Market Crash of 1929
Many banks that had invested in the stock market or loaned money to investors went out of business.
When stocks become overvalued it is often called a "bubble."
The worst one day percentage fall of the U.S. stock market was on October 19, 1987. October 28-29 in 1929 is still the worst percentage two day crash of the market.
Over 16 million shares were traded on Black Tuesday. This record volume of shares was not broken for nearly 40 years.