Wall Street Crash of 1929
Trading stocks and shares on the stock market can be seen as a quick and easy way to make money. However this isn’t always the case, historically stock market crashes have occurred throughout 20th Century history.
A stock market crash is a sudden decline in stock prices across a large section of the stock market. A stock market crash generally occurs after a period of panic selling. Generally in periods of high economic optimism, stock prices can become higher than their true value, if this optimism fades, market participants become likely to sell stocks at a lower value.
As stock values decrease, panic sales can set in, causing the stock market to crash. The stock market crash of 1929, also known as the Wall Street Crash 1929 or The Great Depression was one of the largest stock market crash in the history of the United States.
After a decade of huge prosperity and predictions of permanently high share values, a decline in real estate prices culminated in the Stock Market showing signs of instability in the summer of 1929.
The stock market had risen to a record high in September 1929 due to public investors being infatuated with rising prices (and profits) and thus ploughing huge amounts of money into stocks. Investment trusts (those who bought stocks and shares on behalf of their members) were becoming more and more widely used also.
Due to how lucrative buying and selling shares appeared, investors were routinely borrowing more than two thirds of the face value of stocks they were buying. When the stock market began to show signs of instability, those who had borrowed began to fear they wouldn’t get back what they had paid and began to panic sell.
On Tuesday October 29, 1929, or “Black Tuesday” as it is more commonly known, stock prices plummeted and continued to do so for a month afterwards. The Dow Jones Industrial Average (an indicator of stock prices based on US stocks of 30 large industrial companies) fell 38 points to 260.
This was a 12.8% drop in one day as panic selling kicked off. Over the course of Tuesday and Wednesday, the Dow Jones Industrial Average dropped 23% in total, and dropped 40% by the week of November 11th from the September high.
The Stock Market crash of 1929 was the major event that lead to the Great Depression, a severe economic depression, that spread through developed countries globally and lasted for over 10 years.
Effects of the Great Depression were suffered worldwide. In the USA unemployment rose to 25%, while it exceeded 30% in other developed countries. Personal income, tax revenue, profit, and international trade dropped by over half of their previous value.
The Stock Market crash of 1929 wasn’t the only market crash in the 20th century though. The Dow Jones Industrial Average dropped 22.6% on “Black Monday” in the Stock Market Crash of 1987, the greatest single day loss in history.
The stock market crash of 2008 wasn’t far behind, either, with a 21% drop in a week, 7% less than 1987. That said, no single stock market crash has ever had such devastating effects as 1929 as yet.
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As investments are subject to market risks and price fluctuation risk, there is no assurance or guarantee that the investment objectives shall be achieved. Past performance of securities/instruments is not indicative of their future performance. This post is only for Educational purpose.