Black Tuesday

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Black Tuesday

Black Tuesday refers to October 29, 1929—the day the U.S. stock market plunged in a massive, panicked sell-off that helped usher in the Great Depression. The Dow Jones Industrial Average fell about 12% that day, more than 16 million shares changed hands, and investor confidence collapsed.

Key takeaways

  • Black Tuesday (Oct. 29, 1929) was one of the largest one-day percentage declines in U.S. market history and marked the end of the Roaring Twenties.
  • Contributing factors included widespread margin borrowing, uneven income distribution, slowing economic activity, protectionist trade policies, and tighter monetary conditions.
  • Between 1929 and 1933 GDP fell by more than 36% and unemployment rose above 25%. International trade declined about 66% from 1929 to 1934.
  • The market did not regain its 1929 peak until November 23, 1954.

Background: the Roaring Twenties and a fragile boom

The 1920s saw rapid stock-market gains and broad public enthusiasm for equities. Ordinary investors increasingly bought stocks, often using margin loans from brokers. At times brokers lent up to two‑thirds of a stock’s price with the purchased shares serving as collateral. Rising inequality concentrated wealth at the top—roughly the top 1% held a significant share of national wealth—while many consumers carried heavy debt loads from new purchases such as cars and houses. By mid‑1929, several indicators showed the expansion losing momentum: factory output and durable‑goods sales were weakening and farm incomes had been depressed as European agriculture recovered after World War I.

Major causes of the crash

  • Excessive leverage: Widespread margin buying magnified losses when prices turned.
  • Overvalued markets: Stock prices had risen rapidly relative to fundamentals.
  • Slowing real economy: Declines in production and consumer spending eroded corporate profits.
  • Protectionist trade policy: Higher tariffs (notably the Smoot–Hawley Tariff Act in 1930) and other countries’ retaliatory measures reduced global demand and trade.
  • Monetary tightening and shocks: The Federal Reserve allowed regional discount rates to rise in 1929, and financial scandals abroad (e.g., the Clarence Hatry fraud in London) increased global market volatility.

The crash timeline

  • Black Thursday (Oct. 24, 1929): The market plunged at the open. Banking leaders temporarily supported prices by buying large blocks of stock, and the market closed with losses reduced.
  • Black Monday (Oct. 28, 1929): Renewed panic and margin calls drove the market down by about 13%.
  • Black Tuesday (Oct. 29, 1929): Panic selling intensified; the DJIA fell roughly 12% on record volume. Efforts by financiers and industrialists to prop up prices could not stop the slide. Between September and November 1929 the market lost over $30 billion in value.

Immediate and long-term economic consequences

  • Market values collapsed and remained depressed for years. The DJIA fell from a peak near 381.17 on Sept. 3, 1929, to a 20th‑century low of 41.22 on July 8, 1932—an 89% decline from the high.
  • Real GDP contracted sharply (over 36% from 1929 to 1933) and unemployment surged to more than 25%.
  • International trade collapsed as protectionist policies and falling demand reduced cross‑border commerce by about two‑thirds between 1929 and 1934.
  • Recovery was slow. Policy changes under President Franklin D. Roosevelt, including a shift away from high tariffs and the Reciprocal Trade Agreements Act of 1934, helped rebuild trade and confidence, but the stock market did not fully recover to its 1929 peak until the mid‑1950s.

Lessons and legacy

Black Tuesday highlighted the risks of excessive leverage, weak financial oversight, and protectionist policy during global downturns. The crash and the ensuing Depression prompted long‑lasting reforms in U.S. financial regulation and economic policy, including stronger banking oversight and a more active role for monetary and fiscal policy in stabilizing the economy.

Summary

Black Tuesday was a tipping point rather than the single cause of the Great Depression: it reflected deeper imbalances—overleverage, speculative excess, a slowing economy, and damaging trade policies—that turned a market correction into a prolonged economic catastrophe.