Black Tuesday: October 29, 1929 – History, Reasons, Impacts
Black Tuesday is one of the major events in the history of stock trading and the stock market crashes. A trader should learn from the history of Black Tuesday and avoid such kinds of mistakes in future.
In this article, tradingcritique.com explains the history, reasons, after-effects, impacts such as the economic, social, political, and psychological impacts created by Black Tuesday.
What is Black Tuesday
Black Tuesday is the day where investors in the New York Stock Exchange lost billions of money. This Tuesday in the history of the stock market saw more selling of stocks due to fear of financial instability around them.
Black Tuesday is also called as the Stock Market Crash of 1929 or the Wall Street Crash of 1929.
The investors in the New York Stock Exchange traded more than 16 million shares in a single day and that was black Tuesday. As these 16 million stocks were sold in a single day, the New York stock market crashed during Black Tuesday.
About $14 Billion worth of stocks were lost by the investors in the New York Stock Exchange on Black Tuesday. The value of $14 Billion of 1929 is worth up to $225 Billion in 2021.
Black Tuesday is a notable day in the history of stock trading and the mistakes learnt from it was a big lesson to the investors, financial institutions, and governments globally.
When is Black Tuesday?
Black Tuesday happened on October 29, 1929. This was a major event in the sector of economics and finance after World War I which had a negative impact on the lives of people.
The roaring twenties which was the decade of economic prosperity after World War I came to an end by this period when Black Tuesday happened.
Before Black Tuesday there were major events such as Black Thursday and Black Monday that happened in the same New York Stock Exchange. Black Tuesday was followed by the great depression that lasted till the end of the 1930s.
Table 1: Events that were important and had significance on Black Tuesday
| Event Name | Date | Major Happenings |
|---|---|---|
Black Thursday | October 24, 1929 | New York Stock Market lost its value by 11% |
Black Monday | October 28, 1929 | More Margin calls, more selling, Dow Jones Industrial Average decreased by 12.82% |
Black Tuesday | October 29, 1929 | Panic selling, 16 million Shares sold, New York Stock Market crashed |
Great Depression | August 1929 – March 1933 | A total economic slowdown in most of the countries. Many events lead to Great Depression worldwide. Black Tuesday was the first major event that started the Great Depression. |
Where did Black Tuesday take place?
Black Tuesday took place in the New York Stock Exchange on the famous known Wall Street in New York, United States of America.
Why was October 29, 1929, Black Tuesday?
Black Tuesday was a grave hit to the stock market. It made the investors lose a lot of money. October 29, 1929, had a lot of negative effects on the Stock market, Investors, Government and Economy of the USA, it was named ‘Black Tuesday’.
What is the reason for Black Tuesday to happen?
The reason for the black Tuesday occurrence can be dated back to the end of World War I.
Let us see how Black Tuesday happened in the below points.
- The end of World War I gave a positive sign to the countries. This made the countries concentrate and develop their domestic economy. Most of the countries banned imports to safeguard local production and interest.
- The people were happy as the war ended and started to live their lives.
- All the sectors of the economy boomed after World War I in the American and European countries.
- The stocks increased in price. It was believed that the stock market prices will increase always.
- The federal bank of the USA increases the discount rates and made monetary policies to increase lending.
- This made the Brokers in the stock market lend to the investors to buy more stocks.
- A new feature called margin or leverage trading was introduced in the New York stock exchange
- This made more investors borrow more money from the brokers and invest in the stocks.
- The share prices were also rising after World War I.
- Income inequality also rose within the USA. 6% of the wealth in the USA was owned by 1% Americans.
- Stock prices were increasing more which reached their breaking point before black Tuesday and many factors contributed to the sudden decrease of the stock prices.
- Economic instability such as the decrease in real estate prices, very strict tariffs for imports, less interest in international trade, etc. in the USA were also factors that contributed to the decrease of shares prices.
- Investors started panic selling i.e., everyone wanted to sell stocks to save their money. As many investments were made using margin, Investors were under debt and was under pressure to get back the money invested in the stock market.
- Many investors started selling the stocks for less cost. The stocks further started to decrease in cost due to more supply and less demand. This was the major reason for the stock market crash.
- Black Thursday, Black Monday was witnessed before the New York Stock Market crash that happened on Black Tuesday.
- All the positive economic changes which happened after World War I came to an end by Black Tuesday followed by the Great Depression.
Predictions of a Stock market crash
Black Tuesday and the stock market crash was predicted well before by some financial experts.
During June and September of 1929, the Dow and Jones Industrial average increased above 20% which peaked at 381.17 points on September 3, 1929. This increase in stock prices was an abnormal rise.
The famous financial expert Roger Babson predicted that “A crash is coming and, it may be terrific.”
As predicted by him there was a decline in the stock prices by the starting of September 1929 and it was famously known as the
Babson break. This was the starting point of the great crash.Countries affected by Black Tuesday
Though Black Tuesday happened in New York, USA, the impact of panic selling was also seen worldwide. A major reason for that is the crash of the London stock exchange on September 20, 1929, when a famous British Investor named Clarence Hatry and his associates were jailed for forgery.
This incident impacted the American investors who had their investments overseas. This also had a significant impact on Black Tuesday.
On the other hand, after the occurrence of Black Tuesday London Stock Exchange also saw its impact. Black Tuesday followed by the Great Economic Depression affected the world economy.
Individuals affected by Black Tuesday
Even normal individuals who were not investors and shareholders were affected by the impacts of Black Tuesday. It impacted the complete economy of the USA and increased the economic instability even across other countries.
About 25% of US citizens were unemployed. People lost their savings which they deposited with the banks. Because the banks invested in the stock market for more returns. Unluckily the stock markets crashed on Black Tuesday.
There was decreased economic growth which could be witnessed in the Gross Domestic Product (GDP) also. Each and every sector in the economy was affected by the stock market crash in one or the other way. The real estate sector was also hit badly.
Why it is important for the traders to know about Black Tuesday?
Traders should know about black Tuesday because it would caution them when they do any kind of financial trading. The mismanagement of Margin trading or leverage trading is the main reason for the occurrence of Black Tuesday.
Traders must learn from black tuesday and use leverage trading after proper analysis. Leverage trading can make expert traders earn more using efficient fundamental and technical analysis. But it can affect badly the novice traders who are beginners in trading.
Uses
Though Black Tuesday was a grave history, it has taught a lot to investors, stock markets, governments, and other financial institutions. Black Tuesday gave an example of what happens if Leverage trading or trading in margin does if used incorrectly.
Black Tuesday showed us that even the stock markets can crash and the prices on the stock market can never be on the rise. You can compare this to the present-day situation of cryptocurrencies.
Bitcoins had a value of $0 when it was introduced in 2009. The peak value of Bitcoin was more than $64,000 on April 14, 2021. Now the prices of bitcoin have started decreasing again.
Black Tuesday is a great lesson that teaches how to do stock trading, leverage trading or margin trading, selling and buying of stocks. It taught a very much important lesson for governments and financial institutions to manage the economy of a country properly in all means.
Advantages and Disadvantages
Though Black Tuesday caused a lot of problems which was a disadvantage, it has also some advantages on its side. Let us see the pros and cons of black Tuesday below.
Table 2: Advantages and Disadvantages of Black Tuesday
| Advantages of Black Tuesday | Disadvantages of Black Tuesday |
|---|---|
Black Tuesday taught a great lesson through a grave history of the stock market crash in 1929. | Witnessed a lot of loss for the investors, financial institutions which hit the economy as a whole. |
Much more knowledge was gained, and research were done prominently so that Black Tuesday does not repeat. | High level of panic selling as never seen before in the history of stock markets. |
Usage of trading with margin or leverage trading was learnt better after Black Tuesday. | Lead to a big, famous, and impactful stock market crash. |
The US Government analysed a lot on the bills and monetary policy they pass to reduce the impacts after black Tuesday. | Lead to a major financial instability globally called the Great Depression. |
Impact and after effects of Black Tuesday
Black Tuesday affected people from different walks of life. It also affected the various sectors of the economy in many ways. Let us see its impact on the economic, social, political and psychological life of the people.
Economic Impact
The economic impact of black Tuesday is so huge. As mentioned above the investors lost billions of money just on Black Tuesday. The impact of Black Tuesday was seen in the banking sector, production sector, agricultural structure, financial sector, etc.
Even the financial institutions like the banks which have invested in the stock market lost their money. Money in the bank means the money in the deposits made by the people i.e., the savings money. About $1.7 billion of deposits and savings money of common people were lost as the banks failed. Many people’s livelihood was affected as the savings money was lost.
Many companies also lost their money in the stock market. A total number of 2,294 banks, 28,285 businesses and companies failed and closed in 1931. Totally, the economy of the USA crumbled because of black Tuesday.
The economy of the United States of America and European countries were gaining momentum after World War I. This period was known as the roaring twenties. But this situation came to an end as the economy started slowing down after black tuesday.
Real estate prices went so low even before Black Tuesday. The economic slowdown was the reason for the real estate prices to go down which also played a major role in the occurrence of black Tuesday to happen. Economic slowdown before Black Tuesday and the sudden decrease in the stock prices led to panic selling.
The impact of black Tuesday remained for years, and it took many efforts to bring the economy of the country back to normal.
Social Impact
As mentioned in the above sections, Black Tuesday has affected a lot of sectors in the economy. It resulted in the closure of many companies. This led to unemployment. Millions lost their jobs to the impact of Black Tuesday. It was pretty hard, and nobody had job security.
Everyone was in a fear of losing everything they had. People’s normal life was affected, and their normal livelihood and lifestyle changed a lot. People feared to invest in the stock market again as they may lose money. They are even feared to deposit money in the banks.
The social impact of black Tuesday was heavy and bringing back the people to the normal state took more than a decade. It was through the efforts of the government the balance in the economy was brought back.
Psycological Impact
Black Tuesday on the first hand happened because of psychological outrage. When the investors started to panic sell in bulk in a single day that is on the Black Tuesday, the stock market crashed. It is the psychology of the investors that they would use lose the money they invested made them create black Tuesday.
The psychological impact of black Tuesday was heavy on normal people, investors, companies, financial institutions, and the governments also. A state of insecurity was felt in the people. People were stressed about how they are going to manage their financial needs as many people lost their jobs.
The government was also in a very much stressful situation to safeguard its citizens. It took much time to get out of this psychological impact caused by Black Tuesday.
Political Impact
Before the event of Black Tuesday, America followed a protectionist policy. As a result, the Smoot Hawley tariff act was passed which increased the tariff of agricultural imports. International trade decreased to about 66% from 1929 to 1934. This bloomed the domestic economy in the USA which peaked before Black Tuesday. The higher economic growth rate domestically in a short span was also a major reason for this stock market crash to happen in 1929.
This protectionist policy and Smoot Hawley tariffs were abolished by President Franklin Delano Roosevelt to bring back the economy to normal. He introduced the Reciprocal Trade Agreement Act in 1934 to improve international trade. Even though many steps were taken to recover the US economy no improvements were seen till November 23, 1954.
If there a possibility for another Black Tuesday to happen?
– George Bernard Shaw
The proverb mentioned above talks about the psychology and mindset of human beings. In many situations, humans forget their experience and tend to repeat the mistakes in the same way or the other way. World War II can be an example of the above problems as humans did not learn from World War I.
The same happened and Black Tuesday was repeated in different forms. A financial crisis is never only a one-time occurrence. Even before Black Tuesday, many stock market crashes were witnessed. The famous ones are Tulip mania and the panic of 1907.
After Black Tuesday, the stock market crashes that were witnessed in 1987, the crash of 2008 – 2009, the 2010 flash crash, etc. Very recently the stock market crash happened due to the impact of the Covid-19 pandemic.
Everything should be in a balance. When the balance is one-sided there will be a situation where the balance should be retained back. This applies even to scientific and natural laws. In the same way when the stock market goes to its high peak it definitely has a downfall too.
To stop the recurrence of the stock market crash all economic factors should be balanced in a country. But everything can’t be controlled by humans. Take for example the stock market crash that happened with the COVID-19 pandemic.
There is a debate whether Covid 19 Coronavirus is a human-made or a naturally occurring virus. Whatever it is it, affected the people involved in all walks of life such as health, finances, personal life, education, etc.
Governments were also stunned on how to handle the COVID 19 situation. We as a human race are coming out and living our lives out of COVID-19 step by step. Sometimes things go in an unmanageable way. But we can bring it back to Balance.
Black Tuesday can happen one day again. We must analyse what happened during Black Tuesday and make efforts not for it to repeat again. If it repeats too, we should be in a planned situation to reduce its impacts and after-effects.
In a Nutshell
- Black Tuesday was the major stock market crash that happened on October 29, 1929, in the New York Stock Exchange, USA.
- Black Tuesday is also known as the Wall Street crash of 1929, or the stock market crash of 1929.
- Billions of money were lost by many investors in a single day due to panic selling.
- The roaring 20s which had economic flourishment after World War I came to an end with the occurrence of black Tuesday.
- Foreign policies, restrictions on international trade, more tariffs for imports in the USA was one among the reason for this black Tuesday to happen.
- Mismanagement and wrongly using margin for investing in stocks by investors was the main cause for the crash.
- Most of the sectors in the economy were affected by the impact of Black Tuesday which led to unemployment in the USA.
- Black Tuesday was the major event that led to the Great Depression that followed suit all over the globe.
Black Tuesday and financial disasters like these should never be repeated. But we cannot always predict such kind of financial crisis as it happened during the Covid-19 pandemic.
If worked properly and analytically any financial crisis like Black Tuesday can be predicted much earlier by the advanced knowledge we have in this 21st century.
ADVERTISEMENT
Newsletter