The Wall Street crash of 1929, also known as the Great Crash, was a major stock market crash in the United States which began in October 1929 with a sharp decline in prices on the New York Stock Exchange (NYSE). It triggered a rapid erosion of confidence in the U.S. banking system and marked what would later cascade into the worldwide Great Depression that lasted until the United States entered into World War II on December 8, 1941, making it the most devastating crash in the country's history. It is most associated with October 24, 1929, known as "Black Thursday", when a record 12.9 million shares were traded on the exchange, and October 29, 1929, or "Black Tuesday", when some 16.4 million shares were traded.
The "Roaring Twenties" of the previous decade had been a time of industrial expansion in the U.S., and much of the profit had been invested in speculation, including in stocks. Many members of the public, disappointed by the low interest rates offered on their bank deposits, committed their relatively small sums to stockbrokers. By the year 1929, the U.S. economy was showing signs of trouble; the agricultural sector was depressed due to overproduction and falling prices, forcing many farmers into debt, and consumer goods manufacturers also had unsellable output due to low wages and thus low purchasing power. Factory owners cut production and fired staff, reducing demand even further. Despite these trends, investors continued buying shares in parts of the economy where output was falling and unemployment was rising, pushing stock prices far above their underlying value.
By September 1929, more experienced shareholders realized that prices could not continue to rise and began to get rid of their holdings, which caused share values to stall and then fall, encouraging more to sell. As investors panicked, the selling became frenzied. After Black Thursday, leading bankers joined forces to purchase stock at prices above market value, a strategy used during the Panic of 1907. This encouraged a brief recovery before Black Tuesday. Further action failed to halt the fall, which continued until July 8, 1932; by then, the stock market had lost some 90% of its pre-crash value.
Congress responded to the events by passing the Banking Act of 1933 (Glass–Steagall Act), which separated commercial and investment banking, and the Securities Act of 1933 and Securities Exchange Act of 1934, which created the U.S. Securities and Exchange Commission, authorized the creation of its disclosure regulations, and prohibited the market manipulation, insider trading, and speculative investing practices that precipitated the crash. Stock exchanges introduced a practice of suspending trading when prices fell rapidly to limit panic selling. Scholars disagree about the crash’s role in the Great Depression. Some argue that the price swings were not, by themselves, severe enough to trigger a major collapse of the financial system. Others contend that the crash, combined with other economic problems in the U.S. in the 1920s, should be understood as one stage of a broader business cycle affecting capitalist economies.
Background
The "Roaring Twenties", the decade following World War I and the Recession of 1920–1921, has been scholarly and biographically regarded as an era defined by wealth, luxury and excess. Building on post-war optimism, rural Americans migrated to the cities in vast numbers throughout the decade, hoping to find a more prosperous life amid the ever-growing expansion of America's industrial sector, pursuing means of conspicuous consumption.
Declines in the money supply caused by Federal Reserve decisions were beginning to have a severely contractionary effect on output. Despite the inherent risk of speculation, it was widely believed that the stock market would continue to rise. On March 25, 1929, after the Federal Reserve warned of excessive speculation, a small crash occurred as investors began selling stocks rapidly, exposing the market's shaky foundation. Two days later, banker Charles E. Mitchell announced that his company, the National City Bank, would provide $25 million in credit to stop the market's slide. Mitchell's move brought a temporary halt to the financial crisis, and call money declined from 20 to 8 percent. However, the American economy showed ominous signs of trouble. Steel production declined, construction was sluggish, automobile sales went down, and consumers were building up large debts because of easy credit.
Despite these problems and the market breaks in March and May 1929, stocks resumed their advance in June, and the gains continued almost unabated until early September 1929 (the Dow Jones average gained more than 20% between June and September). The market had been on a nine-year run that saw the Dow Jones Industrial Average increase in value tenfold, peaking at 381.17 on September 3, 1929. Shortly before the crash, economist Irving Fisher famously proclaimed "Stock prices have reached what looks like a permanently high plateau". The optimism and the financial gains of the great bull market have been regarded as having been shaken after a well-publicized September 5 prediction from financial expert Roger Babson, declaring that "a crash is coming, and it may be terrific". The initial September decline was thus called the "Babson Break" in the press. That was the start of the Great Crash, but until the severe phase of the crash in October, many investors regarded the September "Babson Break" as a "healthy correction" and buying opportunity.
On September 20, 1929, top British investor Clarence Hatry and many of his associates were jailed for fraud and forgery, leading to the suspension of his companies. This may have weakened the confidence of Americans in their own companies, although it had minimal impact on the London Stock Exchange. In the days leading up to the crash, the market was severely unstable. Periods of selling and high volumes were interspersed with brief periods of rising prices and recovery.
Conservative economists Jude Wanniski and Alan Reynolds have argued that the immediate cause of the crash was investor fears about the Smoot–Hawley Tariff Act, which was being negotiated in the U.S. Senate at the time. On October 23, 1929, while voting on an amendment to the bill, 16 senators who had been considered members of an anti-tariff coalition unexpectedly changed their votes and supported an increase in the tariff on calcium carbide imports from Canada. The crash began that afternoon and grew worse the following morning. In response, libertarian economist Scott Sumner has pointed out that this vote did not significantly change the anti-tariff coalition, which Sumner says was growing stronger during the days following October 23 while the crash was occurring. Instead, Sumner argues that the ongoing conflict between pro-tariff and anti-tariff Republicans led investors to worry that the party could not govern effectively on economic issues. In particular, he cites the controversy over the appointment of Otto H. Kahn, a Wall Street banker who supported the tariff bill, as treasurer of the Republican Senatorial Campaign Committee. Kahn's appointment was announced on the evening of October 24, and fierce opposition from Progressive Republicans who opposed the bill forced him to publicly turn down the offer on October 29.
Harold Bierman, Jr., argues that the decline in stock prices began on October 3, 1929, in response to a widely publicized comment from British Chancellor of the Exchequer Philip Snowden, who described American markets as a "speculative orgy". In this unsettled market, Bierman says, the sudden crash a few weeks later was triggered by federal and state efforts to regulate public utilities, which had become a common vehicle for investment trusts. In particular, he argues that the creation of the Committee on Public Service Securities in the state of New York by Governor Franklin D. Roosevelt on October 8, and similar investigatory action in Massachusetts the following week, were possible "straws that broke the camel's back", sparking fears that those public utilities were overvalued by speculators.
Stock crash
Selling intensified in late-October. A sharp, unexpected decline in stock prices began on the afternoon of October 23, about an hour before trading ended for the day, leading to a 4.6% drop in total market value. That night, many investors panicked and resolved to sell their shares as soon as possible. On October 24, "Black Thursday", the market lost 11% of its value at the opening bell. In the first three minutes alone, nearly three million shares of stock, accounting for $2 billion of wealth, changed hands. The huge volume meant that the report of prices on the ticker tape in brokerage offices around the nation was hours late, and so investors had no idea what most stocks were trading for. Several leading Wall Street bankers met to find a solution to the panic and chaos on the trading floor. The meeting included Thomas W. Lamont, acting head of Morgan Bank; Albert Wiggin, head of the Chase National Bank; and Charles E. Mitchell, president of the National City Bank of New York. They chose Richard Whitney, vice president of the Exchange, to act on their behalf.
With the bankers' financial resources behind him, Whitney placed a bid to purchase 25,000 shares of U.S. Steel at $205 per share, a price well above the current market. As traders watched, Whitney then placed similar bids on other "blue chip" stocks. The tactic was similar to one that had ended the Panic of 1907 and succeeded in halting the slide. The Dow Jones Industrial Average recovered, closing down only 6.38 points (2.09%) for the day.
On October 28, "Black Monday", more investors facing margin calls decided to get out of the market, and the slide continued with a record loss in the Dow for the day of 38.33 points, or 12.82%.
On October 29, 1929, "Black Tuesday" hit Wall Street as investors traded some 16 million shares on the New York Stock Exchange in a single day. Around $14 billion of stock value was lost, wiping out thousands of investors. The panic selling reached its peak with some stocks having no buyers at any price. The Dow lost an additional 30.57 points, or 11.73%, for a total drop of 68.90 points, or 23.05% in two days.
On October 29, William C. Durant joined with members of the Rockefeller family and other financial giants to buy large quantities of stocks to demonstrate to the public their confidence in the market, but their efforts failed to stop the large decline in prices. The massive volume of stocks traded that day made the ticker continue to run until about 7:45 p.m.
After a one-day recovery on October 30, when the Dow regained 28.40 points, or 12.34%, to close at 258.47, the market continued to fall, arriving at an interim bottom on November 13, 1929, with the Dow closing at 198.60. The market then recovered for several months, starting on November 14, with the Dow gaining 18.59 points to close at 217.28, and reaching a secondary closing peak (bear market rally) of 294.07 on April 17, 1930. The Dow then embarked on another, much longer, steady slide from April 1930 to July 8, 1932, when it closed at 41.22, its lowest level of the 20th century, concluding an 89.2% loss for the index in less than three years.
Beginning on March 15, 1933, and continuing through the rest of the 1930s, the Dow began to slowly regain the ground it had lost. The largest percentage increases of the Dow Jones occurred during the early and mid-1930s. In late 1937, there was a sharp dip in the stock market, but prices held well above the 1932 lows. The Dow Jones did not return to its peak close of September 3, 1929, for 25 years, until November 23, 1954.
Aftermath
In 1932, the Pecora Commission was established by the U.S. Senate to study the causes of the crash. The following year, the U.S. Congress passed the Glass–Steagall Act mandating a separation between commercial banks, which take deposits and extend loans, and investment banks, which underwrite, issue, and distribute stocks, bonds, and other securities.
Afterwards, stock markets around the world instituted measures to suspend trading in the event of rapid declines, claiming that the measures would prevent such panic sales. However, the one-day crash of Black Monday, October 19, 1987, when the Dow Jones Industrial Average fell 22.6%, as well as Black Monday of March 16, 2020 (−12.9%), were worse in percentage terms than any single day of the 1929 crash (although the combined 25% decline of October 28–29, 1929, was larger than that of October 19, 1987, and remains the worst two-day decline as of October 7, 2024).
Analysis
The crash followed a speculative boom that had taken hold in the late 1920s. During the latter half of the 1920s, steel production, building construction, retail turnover, automobiles registered, and even railway receipts advanced from record to record. The combined net profits of 536 manufacturing and trading companies showed an increase, in the first six months of 1929, of 36.6% over 1928, itself a record half-year. Iron and steel led the way with doubled gains. Such figures set up a crescendo of stock-exchange speculation that led hundreds of thousands of Americans to invest heavily in the stock market. Many people were borrowing money to buy more stocks. By August 1929, brokers were routinely lending small investors more than two-thirds of the face value of the stocks that they were buying. Over $8.5 billion was out on loan, more than the entire amount of currency circulating in the United States at the time.
The rising share prices encouraged more people to invest on the hope that share prices would rise further. Speculation thus fueled further rises and created an economic bubble. Because of margin buying, investors stood to lose large sums of money if the market turned down or even if it failed to advance quickly enough. The average price to earnings ratio of S&P Composite stocks was 32.6 in September 1929, clearly above historical norms. According to the economist John Kenneth Galbraith, the exuberance also resulted in a large number of people placing their savings and money in leverage investment products like Goldman Sachs's "Blue Ridge trust" and "Shenandoah Trust", which crashed in 1929 as well, resulting in losses to banks of $475 billion in 2010 dollars ($701.3 billion in 2025).