The most catastrophic stock market crash in the history of the United States, Black Tuesday took place on October 29, 1929 and was when the price of stocks completely collapsed. It was because of this day that the Roaring Twenties came to a stumbling halt and, in its place, was the Great Depression. It all started a half a week earlier on Black Thursday or, due to Europe’s time difference, Black Friday. This was a time of incredible instability.
What Caused Black Tuesday
During the 20s, real estate values were on the continuous rise. However, by 1925, values of real estate in the United States had peaked and were beginning to drop. This is known as the start of the chain of events that led to the Great Depression. Real estate is so connected to the economy that, when the property of real estate goes up, so does stock. On the flip side, when it drops, the stock market goes with it.
During the late 20s, Americans speculated a lot and invested money that they didn’t even have. Brokers were known for lending investors more than 2/3 of the value of stock they were purchasing. This resulted in over $8.5 billion to be out on loan. The issue with this was that the $8.5 billion was more than the total amount of currency circulating in the United States during this period of time.
Because investors kept hoping that the price of stock was going to continue going up, people were encouraged to invest. Considering the fact that the price kept going up, people would get greedy and hope for it to go up more before pulling out. This speculation resulted in an economic bubble where the price to earnings ratio was up to 32.6 in September of 1929. When a P/E ration is this high, it becomes dangerous and could lead to economic problems.
The Lead Up to Black Tuesday
Prices on the Dow Jones Industrial Average increased continuously throughout the 20s leading up to September 3. The market closed at 381.17. This was the last time it would be this high. The market began to fall sharply following this, losing nearly 17%. After that month passed, prices recovered nearly 8.5% of the total 17% lost; however, that lasted for only a week. It reversed again and continued its decline, leading up to “Black Thursday,” October 24th.
Leading bankers met on the 24Th to try and stop the continuous slide in stock prices. They chose Richard Whitney to purchase large amounts of different “blue chip” stocks such as U.S. Steel. This was a tactic that had been used to stop a previous panic. It stopped the slide for the 24Th; however, by Monday, the 28Th, everyone knew about the banks buying up the stock in the hopes of correcting the problem.
On “Black Monday,” the 28Th, investors sold record amounts of stock that resulted in the Dow losing 13% of its value in a single day. This had a cataclysmic effect on the stock market and by the next day, everyone wanted out. On Black Tuesday, nearly 16 million shares were traded. According to author Richard M. Salesman, the incredible volume of stocks traded on Black Tuesday was “…a record that was not broken for nearly 40 years, in 1968.”
Although the Rockefeller family and other large families tried to demonstrate confidence in the market to the general population by purchasing large quantities of stock, nothing mattered. The stock market had effectively crashed and people had no confidence in it anymore. In a single day, the market lost $14 billion. This brought the total amount of money lost to $30 billion in a single week. The market reached its low on November 13th at 198.60 then began to rally. On April 17, 1930, it hit 294.07; however, this was the end of the market. On July 8, 1932, the Dow closed at 41.22. The market had completely collapsed and lost 89% from Black Tuesday to this day.