The 1929 Crash
The 1929 crash ended the Roaring Twenties boom and preceded the Great Depression. Learn what caused it, how far stocks fell, the policy response and the lessons.
The Wall Street Crash of 1929 is the most famous market collapse in history. After a speculative boom through the 1920s, US stocks fell sharply in October 1929, with the worst days known as Black Thursday, Black Monday and Black Tuesday. The decline continued in waves until 1932, by which point the Dow Jones Industrial Average had lost close to 90% of its value. The crash and the Great Depression that followed reshaped financial regulation, created the SEC and still influence how investors think about leverage and risk.
Timeline#
| Date | Event |
|---|---|
| 1920s | Rapid economic growth, new technologies, and a surge of stock buying, much of it on margin |
| 3 September 1929 | The Dow peaks at 381.17 |
| 24 October 1929 (Black Thursday) | Heavy selling; leading bankers attempt to support prices |
| 28 October 1929 (Black Monday) | The Dow falls about 13% |
| 29 October 1929 (Black Tuesday) | The Dow falls about 12% on record volume |
| Mid November 1929 | The Dow is down roughly 48% from its September peak |
| 1930 | A partial rebound, then renewed declines |
| 8 July 1932 | The Dow bottoms at 41.22, about 89% below its peak |
| November 1954 | The Dow finally regains its 1929 high |
Causes#
| Factor | Explanation |
|---|---|
| Speculative excess | Stock prices rose far faster than earnings, driven by optimism and easy profits |
| Margin buying | Investors could buy with as little as 10% down, borrowing the rest. See Margin Financing |
| Investment trusts | Leveraged pooled vehicles amplified gains and losses |
| Monetary tightening | The Federal Reserve raised rates in 1928 and 1929 to curb speculation |
| Weakening economy | Industrial production had begun to slow before the crash |
How leverage turned a fall into a collapse#
From crash to depression#
The crash did not alone cause the Great Depression, but it damaged confidence and wealth. Bank failures, a contraction in the money supply, falling prices and trade barriers such as the Smoot Hawley Tariff Act of 1930 deepened the downturn. Thousands of US banks failed in the early 1930s, and unemployment reached about a quarter of the labour force by 1933. Economists, including later Federal Reserve chair Ben Bernanke, have argued that monetary policy failures made the Depression far worse. See Monetary vs Fiscal Policy.
The regulatory response#
| Law or body | Purpose |
|---|---|
| Securities Act of 1933 | Required disclosure for new securities offerings |
| Glass Steagall Act (Banking Act of 1933) | Separated commercial and investment banking and created the FDIC |
| Securities Exchange Act of 1934 | Regulated trading and created the SEC. See Trading Regulators: SEC, CFTC, FINRA and NFA |
| Margin rules | Gave the Federal Reserve power to set margin requirements, later Regulation T. See Account Types and Margin Rules |
Lessons for traders and investors#
- Leverage magnifies crashes: small margins leave no room for error. See Risk of Ruin.
- Recovery can take decades: the Dow took about 25 years to regain its 1929 peak in price terms, though dividends and falling prices shortened the real recovery. See Maximum Drawdown.
- Speculative booms end: prices far ahead of earnings are vulnerable. See Valuation Basics.
- Policy matters: central bank and government responses shape how deep downturns become. See Central Banks Explained.
- Diversification across assets and time helps survive long bear markets. See Diversification.
Sources#
- Federal Reserve History, "Stock Market Crash of 1929": https://www.federalreservehistory.org/essays/stock-market-crash-of-1929
Frequently asked questions#
What caused the stock market crash of 1929?#
Speculative excess, widespread margin buying, leveraged investment trusts, tighter monetary policy and a slowing economy combined to trigger heavy selling.
How much did the stock market fall in 1929?#
The Dow fell about 48% from its September 1929 peak by mid November and about 89% by its July 1932 low.
How long did it take the stock market to recover from 1929?#
The Dow did not regain its 1929 price high until November 1954, about 25 years later.
Next, learn about the largest one day crash in Black Monday 1987.
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- Record Keeping for TradersThe Trading Industry