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Digital History - The Great Depression and the New Deal
Stock Market Crash
Black Thursday (October 24, 1929)
The roaring twenties or the Jazz age was a time of intense stock market speculation. There may never be a time again like the 1920s, where talk about investing dominated almost every conversation. As reported by John Brooks in
Once in Golconda
, a British Correspondent, after arriving in New York in 1929, reported “You could talk about Prohibition, or Hemingway, or air conditioning, or music, or horses, but in the end you had to talk about the stock market, and that was when the conversation became serious.”
People believed the market could go nowhere but up. Despite hard-earned lessons from a Florida real estate bubble in the mid 1920s and even many volatile days (mostly down days) in September of 1929, investors did not hold back. Until Thursday, October 24th – a day that will live in infamy as “Black Thursday.”
Black Thursday was the first sign of the end of a great bull market.
What goes up, must come down. And come down it did. However, Black Thursday was not the nail in the coffin (that comes on Black Monday and Tuesday). In fact, Black Thursday involved a great comeback. Here's how the story goes:
12.9 million shares changed hands on Black Thursday (a new record – 4 million shares was considered a busy day back then). Most of the panic took place in the morning hours. The ticker tape machine fell behind by an hour and a half leaving investors madly scrambling to sell their investments without even knowing the current prices. Panic set in. People gathered outside the exchanges and brokerages, police were dispatched to insure peace. Rumors were flying. By 12:30 pm, the Chicago and Buffalo Exchanges closed down, eleven well-known speculators had already killed themselves and the NYSE closed the visitor’s gallery on the wild scenes below. Reporters learned that an important meeting was taking place at the office of J.P. Morgan and Company, involving many of the most important men in banking. After the meeting broke, Thomas Lamont, senior partner at Morgan – a company founded by a man who had help stop a panic in 1907, made the following statement to newspaper reporters: “There has been a little distress selling on the Stock Exchange… due to a technical condition of the market” and that things were “susceptible to betterment.”
The market moved up a bit after Lamont’s statement, but the real recovery came at 1:30 pm, when self-confident Richard Whitney, vice-president of the NYSE and floor broker of J.P. Morgan and Company, walked into the exchange floor. The crowd went silent. Everyone expected an announcement that the NYSE would be closed. Instead, Richard Whitney surprised everybody…
Whitney asked for the latest bid on U.S. Steel. “195” someone shouted. Then he promptly announced that he was buying 10,000 shares of U.S. Steel at 205. He immediately received 200 shares and then left the rest of the order with the specialist. He continued to make similar orders for over a dozen more stocks. Fear evaporated as investors became worried that they would miss the new boom. The market would have closed much higher if stop loss orders from earlier that day hadn’t been triggered during the upward surge. Needless to say, the recovery on Black Thursday was impressive, but so was the massive sell off earlier in the morning that gave it its name.
Friday and Saturday morning sessions held steady as everyone became optimistic with the market’s ability to recover. These feelings were squashed on Black Monday.
Black Monday (October 28th, 1929)
Black Monday was a terrible day in the market. Unlike the Black Thursday, no "hero" stepped in to regain investor’s confidence. Richard Whitney did not walk into the NYSE and the bankers and Mr. Lamont didn't make comments until after market close and those words weren't that optimistic. Volume levels were very high (around 9.25 million shares) as speculators began to realize that no one could save the market. Speculators could only hope that the damage wouldn’t be too bad.
Black Monday was the 2nd worst day in U.S. stock market history. The worst day in history wouldn’t come for 58 more years (October 19th, 1987), which also happens to be a Monday and is also referred to as "Black Monday."
Just 1 week earlier, on Monday the 21st, investors had their first glimpse of the three Black Days as the volume was high (6,091,870 shares) and the ticker tape fell seriously behind forcing people began to sell blindly. Over the next week, the market turned people into fools. Perhaps the biggest fool at the time was Professor Irving Fisher.
Well known, trusted Yale University economist, Irving Fisher stated on the 21st, “[the market was only] shaking out of the lunatic fringe” and went on to explain why he felt the prices still have not caught up with their real value and should go much higher. On Wednesday the 23rd, he announced in a banker’s meeting “security values in most instances were not inflated.” Fisher also announced “The nation is marching along a permanently high plateau of prosperity.” Before Black Thursday, Monday and Tuesday, Fisher was considered an investment prophet. Though he was recognized for his contributions to technical economic theory, monetary theory and index numbers in later years, these three Black days crippled Irving Fisher's reputation.
Black Monday is usually considered a precursor to the worst day in stock market history – the nail in the coffin, Black Tuesday.
Black Tuesday (October 29, 1929)
Combine the worst features of Black Thursday with the worst features of Black Monday and you get Black Tuesday. On Thursday, a record 12.9 million shares traded and the ticker tape fell behind one and a half hours. On Black Tuesday, a new record of 16.4 million shares were traded and the ticker tape fell behind by two and a half hours! On Monday, the stock market suffered a record one-day loss of around 13 percent. On Black Tuesday, the market suffered a loss of about 12 percent.
Like the previous "Black Days," the top bankers held a meeting during the day about the market.
Only this time they met twice – once at noon and again in the evening. Once again, Thomas Lamont spoke with the press, but this time it was mostly business. Rumors were that the bankers were selling stocks rather then stabilizing the market. He dispelled the rumors, but did not offer the positive remarks that the previous tragic days featured.
Here is what the Seattle Times wrote about Black Tuesday:
"A veritable bedlam of activity reigned in leading stock brokerage houses in Seattle today as the greatest avalanche of security selling known to history was launched on New York exchanges. Executives and clerks, worn by almost constant application to duty for days past, and with little respite gained by the Saturday afternoon and Sunday intermission breasted the great tide of buying and selling orders with philosophical resignation… Curiosity seemed to prompt attendance of the greater part of the milling throngs in the board rooms." (The Seattle Times, October 29, 1929)
By the end of November, investors had lost $100 billion in assets in what was later called "The Great Stock Market Crash." In just two months, September and October, the stock market had lost 40 percent of its value. Black Tuesday usually marks the point where the Roaring 20’s ended and the Great Depression started. The stock market would continue to fall until bottoming out in July of 1932 with the Dow at 41.22, down 89.2% (from 381.17 to 41.22. The stock market wouldn’t recover for another 22 years!
Worst Stock Market Crashes
To make this list, the market (as represented by the Dow) had to be down over 37 percent from high to low!
One interesting note before we get to the list, is that most market crashes are long (lasting over a year) and 6 out of the top 11 crashes started in either September or November.
10th Worst Stock Market Crash
Total Days: 999
Starting DJIA: 11,792.98
Ending DJIA: 7,286.27
This crash required the longest recovery time of all crashes in this list. The combination of the tech bubble bursting and the September 11th terrorist attack served a deadly blow to the stock market, but relative to markets past, this was a minor one.
9th Worst Stock Market Crash
Total Days: 393
Starting DJIA: 110.15
Ending DJIA: 65.95
As you will see, this market suffered about a 40% loss. It's difficult to break even after a 40% loss. On a $1,000 investment, your portfolio went down to $600. To get back to $1,000, it would have to go up 66.7%!
8th Worst Stock Market Crash
Total Days: 959
Starting DJIA: 155.92
Ending DJIA: 92.92
Although this stock market crash only took the 8th spot, it was one of the most grueling. It took nearly 3 years to recover from this crash! With WWII and the attack on Pearl Harbor, the markets had a very tough time.
7th Worst Stock Market Crash
Total Days: 694
Starting DJIA: 1051.70
Ending DJIA: 577.60
Another long market crash -one that many people still remember (think Vietnam and the Watergate scandal). This crash lasted for 694 days before bottoming out.
6th Worst Stock Market Crash
Total Days: 875
Starting DJIA: 57.33
Ending DJIA: 30.88
This is the oldest crash to make the list (DJIA records are not available before 1900).
The 5th worst stock market crash
Total Days: 660
Starting DJIA: 119.62
Ending DJIA: 63.9
This crash followed a post war boom (Stock prices rose 51%). After the crash bottomed out in August of 1921, this decade saw tremendous growth in the stock market and the economy.
4th Worst Stock Market Crash
Total Days: 71
Starting DJIA: 381.17
Ending DJIA: 198.69
Although this is the shortest market crash observed, it was a deadly one. Investors saw almost half their money disappear in just two months. Often this crash is the worst in most people's minds. This crash kicked off what we now know as the "Great Depression." This crash kicked off what we now know as the "Great Depression."
3rd Worst Stock Market Crash
Total Days: 665
Starting DJIA: 75.45
Ending DJIA: 38.83
This crash was called the "Panic of 1907." The U.S. Treasury department bought 36 million dollars worth of government bonds to offset the decline (and remember, $36 million translates to a much bigger number in today's dollars).
2nd Worst Stock Market Crash
Total Days: 386
Starting DJIA: 194.40
Ending DJIA: 98.95
Just when investors thought the market was finally good again, following a recovery of almost half of the great depression losses, the market plunged again due to war scare and Wall street scandals.
Worst Stock Market Crash Ever
Total Days: 813
Starting DJIA: 294.07
Ending DJIA: 41.22
This is the grand daddy of them all. Investors lost 86% of their money over this 813 day beast. This market crash combined with the 1929 crash, characterizes the Great Depression. If you had $1000 on 9/3/1929 (beginning of the 4th worst crash, it would have gone down to a whopping $108.14 by July 8th, 1932 (end of the worst crash) or an 89.2% loss. To recover from a loss like that, you would have to watch your portfolio go up 825%! The full recovery didn't take place until 1954, 22 years later!
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