On This Day in History- Black Thursday

Posted by Sarah Seippel on

On This Day in History

“Black Thursday” is the name that the ay October 24, 1929 was given to title the first day that the stock market crashed.  This was the worst stock market crash in the United State’s history, and it kicked off the Great Depression.

What is the “Dow Jones Industrial Average- DJIA”

The Dow Jones Industrial Average (DIJA) is a price-weighted average of thirty significant stocks traded on the New York Stock Exchange (NYSE) and the Nasdaq.  The DIJA was invented by Charles Dow in 1896.

The Dow Jones Industrial Average is often referred to as “the Dow”.  It is one of the oldest, most-watched indices in the world, and it incudes some of the most known companies in the world, such as General Electric Company, the Walt Disney Company, and Exxon Mobil Corporation.

What Happened

Prior to the New York Stock Exchange opening on this Thursday in 1929, investors were already hurrying around in a panic.  The Dow Jones Industrial Average had fallen more than 4.5 percent the day before, and when the market opened at 305.85, it immediately fell 11 percent during intra-day trading.

The stock market had already declined by a near twenty percent since its record close the month prior (September 3, 1929) and trading shares were three times normal volume.  The three leading banks at the time were Morgan Bank, Chase National Bank, and National City Band of New York.  To restore confidence in the failing market, the banks bought stock, which did cause to Dow to make a slight recovery; however, this attempt was not successful for long, and the Dow had fallen to 230.07 by the end of Black Tuesday.

After the crash, the Dow continued sliding for three more years, reaching a low n July 8, 1932.  After losing almost 90% of its value, it eventually reaches its previous high about 25 years later, November 23, 1954.

Causes

The exact cause of the stock market crash of 1929 is debated among economists, and several accepted theories exist today.  One theory is that the people and the market were overconfident.  People were unafraid to debt due to rapid growth in bank credit and more accessible loans.  The stock market was perceived as something that even ordinary people with little income could invest in because they could just borrow the money from their stockbroker and then make small investments.  Similarly, companies based their production rates to what was seen in stock trends, so they overproduced many items, including farm crops, steel, and goods. Another theory is that the government raised interests’ rates which affected market stabilizer and reduced economic growth. 

It is possible that the effects of the Stock Market Crash would had been lessened if the public had not panicked.  This only caused a bad situation to be made worse.  Hordes of people rushed to the bank to withdraw their funds and investors were unable to return their money because the bank officials had invested the money in the market.  Many banks failed because of this.  Not only did banks go bankrupt, but many people lost their entire savings, and the country fell into a “Great (economic) Depression”.

 

Sources:

History.com

Investopedia.com


0 comments

Leave a comment