Why The Stock Market Crash Of 1929 Occurred
In retrospect, it is easy to see why the stock market crash of 1929 occurred though it was not so easy to see while it was going on. Historians remain divided as to whether or not this stock market crash set off the Great Depression or whether it was just a contributing factor. At any rate, a great many things went on that helped send the New York Stock Exchange downwards spectacularly.
For much of the 1920s -- sometimes known as the Roaring 20s -- people looked at the stock market with a favorable eye, even though it was and still is based on a bit of risk. The bull markets that were going on seem to say that there would never be an end or a drop-off and huge numbers of investors were enticed into the market. This led to an upward spiral of stock prices.
In 1928, the stock market was at its most vigorous and was growing at ever quicker paces. Many people thought that this tremendous boom would continue forever, though a drop-off was inevitable and coming sooner than many people realize. A lot of people were dumping their life savings into the stock market in anticipation of making a quick short-term profit. 1929 would wake them completely up.
In terms of that particular year, there was actually a nice recovery over the summer of 1929. This ended on September 5, when a historic high was reached and then a gradual but noticeable decline occurred the next day. This was the case for the rest of September and into October when, on the 24th, the bottom began to fall out on the day known as "Black Thursday."
The reason the trapdoor fell open on that day is mainly due to the fact that large numbers of investors were forced to sell off their stocks because they were overextended and stockbrokers began to call in their margins. However, a large group of bankers rushed in and pumped a lot of money into the market to stabilize it. It looked, initially, as if it would succeed though Friday would still be very shaky.
When the markets opened on the morning of Monday the 28th, a panic ensued and a huge selloff of stocks commenced. Many investors were so panicked at the thought of not recovering a dime that they sold their stocks or whatever they could get. No support on the part of bankers would be forthcoming that day. The next day -- "Black Tuesday" -- proved the worst day ever in the history of the market.
On the 29th, panic gripped the markets in a way that had never been witnessed before and so many people don't their stock that it was ours until after the close of the market that every trait could be accounted for. Prices had fallen completely through the floor, a rumor had circulated that banks are selling off their own stocks and a run on the banks all across the country commenced.
Those four days would presage a drop in the markets that would reach its nadir on July 8th, 1932 when the Dow Jones Industrial Average that day closed at 41. 22. This was, in absolute and relative terms, the lowest closing mark ever in the history of the stock market.
Millions lost their life savings, companies went out of business and all faith was lost in banks. It was a cataclysm never seen before or since.
There is much we can learn from the stock market crash of 1929, so that we can avoid any recurrence in the future, but human nature has it's ways. For more educational money related pieces please visit the site today.
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