Black Tuesday

  • Black Tuesday refers to October 29, 1929, which was the beginning of The Great Depression.
  • It is the fourth day of the Great Wall Street Crash, one of the most significant economic disasters of the 20th century.
  • Traders sold 16 million shares on the New York Stock Exchange on this day.

What is Black Tuesday?

Black Tuesday was the end of the four-day collapse which wiped out almost $14 billion from the New York Stock Exchange (which would equate to more than 2 trillion dollars today). It was the fourth day of the stock market crash in the U.S. and a bleak and dismal day on October 29, 1929.

The 1929 stock market crash signaled the end of the years of economic prosperity in the United States. In the early 1920s, growth in the economy led to a substantial surge in the stock markets. But there were already signs around early September of a possible crash. By October 24, the stock market plummeted, then ended on October 29. Black Tuesday led to the beginning of The Great Depression. The Great Depression was a global economic crisis that lasted from 1929 to 1939.

What led to Black Tuesday?

Why did the stock market crash? After World War I ended, there was more money in circulation, and everyone was feeling free with little thought of the consequence of risky trading practices. People were spending more, and banks were lending more. By 1927, automobile sales, agricultural and steel production, consumer spending, and residential construction were down. Employment was down. But stockbrokers ignored these warning signs, and the stock prices continued to rise until 1929.

This behavior, known as “speculation,” is what caused Black Tuesday. Stock speculation refers to risky financial investments that focus only on prices, not on the broader economic condition. Even if investors saw that stock market prices were rising, they ignored the economic situation of the late 1920s. The “speculators” were betting that prices would continue to grow.

Americans speculated a lot and invested money they didn’t have. Brokers and banks lent investors more than the value of the stock they were buying. It led to over $8.5 billion in recorded loans. The United States was distributing more than the total currency during this period. Because investors kept hoping that stock market prices were going to continue to rise, people were encouraged to pour their life savings into stocks.

After people got caught up in a speculative frenzy related to the stock market, the economy tanked. Unemployment ran rampant, low wages abounded, debts increased, and production rapidly declined. As stock prices began to fall in September and early October 1929, panic began to set in. When the banks had no more money to lend, they started to deny the loans. People had no money to pay for the loans, which forced them to sell their businesses and stock. As a result of a slowly snowballing selloff, the stock market started to crash.

On October 24, Black Thursday, nearly 13 million shares were sold. But on October 29, Black Tuesday, sellers traded 16,410,030 worth of shares on the New York Stock Exchange, where the stock prices entirely collapsed.

Black Tuesday and the Great Depression

After the events of Black Tuesday, it seemed stock prices had nowhere to go but up. However, prices kept falling as the United States tumbled into the Great Depression. By 1932, stocks were worth only at 20 percent of their value. By 1933, unemployment has risen to include 15 million people, and almost half of the U.S. banks had closed. The Great Wall Street Crash of 1929 was not the entire cause of The Great Depression, but it played a significant role in fast-tracking America’s economic downfall.

The events of Black Tuesday and The Great Depression took a toll on the economic confidence of the American people. President Franklin D. Roosevelt (1882-1945) enacted reform measures to help lessen the impact of the Great Depression, but the U.S. economy (and people’s confidence in it) did not gain full recovery until after World War II (1939-1945).

 

Disclaimer

This material has been distributed for informational and educational purposes only, represents an assessment of the market environment as of the date of publication, is subject to change without notice, and is not intended as investment, legal, accounting, or tax advice or opinion. Stockpile assumes no obligation to provide notifications of changes in any factors that could affect the information provided. This information should not be relied upon by the reader as research or investment advice regarding any issuer or security in particular. The strategies discussed are strictly for illustrative and educational purposes and should not be construed as a recommendation to purchase or sell. There is no guarantee that any strategies discussed will be effective. Each investor should evaluate their ability to invest long-term, especially during periods of downturn in the market. Investors should not substitute these materials for professional services and should seek advice from an independent advisor before acting on any information presented.

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