The stock market crash of October 29, 1929 precipitated a major economic downturn in the United States and across the world. On what became known as Black Tuesday, the Dow Jones Industrial Average plunged by almost thirteen percent as panicking investors sought to offload their investments.
Prior to the Wall Street crash, the stock market had reached record highs, with more and more individuals and institutions clamoring to invest in a bull market that looked as if it would never end. But now, there was a sudden collapse in confidence, and with it a collapse in the Dow. Billions of dollars were lost in the process, with many investors being wiped out completely. Many more were to suffer the same fate the next day, when the Dow plunged another twelve percent, sending shockwaves around the world.
A number of possible reasons have been put forward to explain the Wall Street crash. Some have argued that the overheating economy was the main factor. For the best part of a decade, the American economy had been growing at a strong pace; it seemed to many that the good times would never end. But in reality, this exceptional period of growth could not be sustained, and when the Federal Reserve raised interest rates to try and stop the economy from overheating, the effect upon economic confidence was disastrous.
An additional factor in the Wall Street crash was the growing practice of buying stocks and shares on credit. The bull market had encouraged many Americans, including those of limited means, to get in on the action. Many first-time investors bought shares "on margin," putting down as little as ten percent of their own money to finance their purchases while borrowing money from their stockbrokers to cover the rest.
When the Dow crashed on Black Tuesday, investors who'd bought shares on margin found that the value of their stocks had fallen lower than the amount they'd borrowed to pay for them. This resulted in stockbrokers issuing so-called margin calls, which meant that the investors immediately had to pay back the money they'd borrowed. As most investors had been completely wiped out by the crash, they were unable to do so, and this caused an even greater decline in share prices.
Whatever the causes of the Wall Street crash, there can be no doubt that it led to a worldwide collapse in economic confidence that precipitated the Great Depression of the 1930s.