Black Tuesday Definition Events Timelines 1929 Market Crash

Black Tuesday Definition

The stock marketStock MarketStock Market works on the basic principle of matching supply and demand through an auction process where investors are willing to pay a certain amount for an asset, and they are willing to sell off something they have at a specific price.read more did not restore its pre-crash heights till November 1954 (closing at 382.74). Moreover, the black Tuesday certainly indicated the dawn of the 10-year-long great depressionGreat DepressionThe Great Depression refers to the long-standing financial crisis in the history of the modern world. It began in the United States on October 29, 1929, with the Wall Street Crash and lasted till 1939.read more that influenced all industrialized nations globally.

Black Tuesday Explained

Black Tuesday, by definition, implies the unfortunate fall-down of the stock market by almost 12% in October 1929. The continued reduction caused DJIA to lose nearly half of its worth until mid-November. The Dow kept decreasing during the summer of 1932 and closed at the lowest value of the 20th century at 41.22 (89% below the peak).

Key Takeaways

Black Tuesday refers to the biggest US stock market crash on October 29, 1929, when the DJIA declined by nearly 12%. It succeeded Black Monday when the Dow reduced by almost 13%. Black Tuesday marked the beginning of the 10-year financial slump called the great depression. The early 1920s was the golden period for the stock market until September 1929, when stock prices started declining abruptly. Its effects incorporate surged unemployment rates, limited commercial affairs, danger to the manufacturing sector, decreased automobile investment, and banks running out of money.

Economists and Federal Reserve leaders learned two crucial lessons from the stock market crash on Black Tuesday. First, the reserve and central banks must cautiously respond to the equity marketEquity MarketAn equity market is a platform that enables the companies to issue their securities to the investors; it also facilitates the further exchange of these stocks between the buyers and sellers. It comprises various stock exchanges like New York Stock Exchange (NYSE).read more. Secondly, they can diminish the damage by any future stock market crash by following their playbook developed in the fall of 1929.

Moreover, here is how the events transpired:

24 August 1921: DJIA commences the post-war advancement at 63.90 points. 22 August 1922: Dow peaks at 100 for the first time and closes the day at 100.75. 1922-1929: Dow increased 400%. 3 September 1929: DJIA touches the pre-crash high and closes at 381.17.24 October 1929: The onset of the stock market crashThe Stock Market CrashA stock market crash occurs when stock prices in all sectors begin to fall rapidly. It is often the result of global factors such as war, scam, or the collapse of a certain industry. In such a crash, panic acts as a catalyst.read more with the trading of chart-topping 13 million stocks, creating panic. Five banks discharge nearly $20 million individually for stock purchases and retrieval of confidence in the stock market. This works, and the Dow closes at 299.47. 25 October 1929: The late rally exists, and the DJIA closes at 301.22. 28 October 1929 (Black Monday): The rally ends, and panic selling continues with the Dow lessening nearly 40 points to close at 260.64. Investors received multiple margin callsMargin CallsA margin call occurs when the stockbroker notifies the trader about the brokerage account balance falling below the minimum maintenance margin.read more from their brokers. 29 October 1929 (Black Tuesday): Dow drops additional 30 points and closes at 230.07 on trading $16 million in stocks.

Causes Of Black Tuesday

In 1929, stock rates had increased to the highest level owing to the period of affluence and extravagance in the US. As a result, the DJIA gained from 63 (August 1921) to 381 (September 1929). Numerous individuals presumed the extended market development, and therefore, investors borrowed cash for stock purchases.

The monetary flourishment led to prosperous families and the advancement of telephones, automobiles, and other technologies. Contrary to popular belief, realty values decreased throughout the late 1920s, causing the mitigation in the stock market. However, some fiscal experts still supported the buying of equities.

The National City Bank President Charles E. Mitchell and an alliance of bankers prompted confidence restoration through publicly buying the stocks at high rates. Nonetheless, the attempt went in vain with continued panic selling by investors and the diminishing of share prices.

Consequently, stock rates began to fall on the black Tuesday date, i.e., October 29, 1929. This compelled the masses to hurriedly sell their stock, exit the market, and drive down the rates. The menacing pattern accelerated “panic selling” until the stock market fell to the lowest spot.

Moreover, the tightening of financial regulations is considered the major reason behind its occurrence.

Effects Of Black Tuesday

The dawn of black Tuesday brought a bad omen for financial marketsFinancial MarketsThe term “financial market” refers to the marketplace where activities such as the creation and trading of various financial assets such as bonds, stocks, commodities, currencies, and derivatives take place. It provides a platform for sellers and buyers to interact and trade at a price determined by market forces.read more resulting in the stock market crash and restricted commercial affairs. Moreover, it threatened the manufacturing and commerceCommerceCommerce is the accumulation of several transactions for a given industry. A transaction is a one-time event where an entity exchanges anything of value with a different entity.read more sector and scared consumers of future investments. As a result, several banks lost all cash and thus, were coerced to close.

Ordinary citizens lost their savings, were concerned about their bill payments and worried about employment. Additionally, the high unpredictability and fright lessened the purchases of automobiles and other big-ticket goods purchased with credit.

Moreover, the black Tuesday led to the most severe event in financial history, known as the great depressionGreat DepressionThe Great Depression refers to the long-standing financial crisis in the history of the modern world. It began in the United States on October 29, 1929, with the Wall Street Crash and lasted till 1939.read more. As a result, stockbrokers also started demanding additional margin callsMargin CallsA margin call occurs when the stockbroker notifies the trader about the brokerage account balance falling below the minimum maintenance margin.read more from investors to cover their open position. The diminished market demand of companies like Ford Motors resulted in laid-off employees and decreased production.

Needlessly, the unemployment rateUnemployment RateThe unemployment rate formula calculates the share of people who are not working or are jobless of the total employed or unemployed labour force and is depicted as a percentage. Unemployment Rate = Unemployed People / Labor Force * 100 read more surged from 3% to about 25%, enhancing contraction and global economic collapseEconomic CollapseAn economic collapse refers to a severe contraction in the economy led by an extraordinary event (financial or structural) which is not a part of the normal economic cycle. It may lead to a decline in national growth, a rise in unemployment, and sometimes social unrest; therefore, it requires government or monetary authorities intervention.read more. The individuals fortunate enough to be employed worked only as part-time employees. During 1929-1933, the US cash supply declined by nearly 1/3rd but increased as rates and output enhanced.

Throughout the relevant contraction phase between the period above, the actual output of the US decreased by almost 30%. Other aftereffects include a steep deflation (price reduction at an annual rate of 10%), plunging share market, extensive bank failures, and reckless bankruptcies.