Black Thursday

Black Thursday, Thursday, October 24, 1929, the first day of the stock market crash of 1929, a catastrophic decline in the stock market of the United States that immediately preceded the worldwide Great Depression. That stock market crash (also called the Great Crash) is still considered the worst one in history. After share prices on the New York Stock Exchange—which had been trending upward for almost a decade—dropped 4.6 percent on Wednesday, October 23, nearly 12.9 million shares were traded the next day, exceeding the previous record number of trades in a single day by almost 4 million. Stockbrokers with telephones and ticker tape could not keep up with the extraordinary volume of trade requests from shareholders, resulting in delayed and incorrect reports, which exacerbated widespread panic and confusion. Police were dispatched to the New York Stock Exchange to quell potential rioting, while Wall Street executives tried to reassure the public.

The Roaring Twenties (i.e., the 1920s) was a time of consumer optimism and significant technological advances that had produced an extended bull market, in which the prices of securities and commodities had risen consistently. This led to rampant speculation, or speculative trading, as millions of people purchased shares on the assumption that continued price increases would enable them to turn quick profits on their investments. Despite the bull market, however, some economists began voicing their concerns about the potential for a crash months before what would quickly become known as Black Thursday. Many of the stocks being traded had been purchased on margin—that is, with a cash payment representing only a small fraction of the stocks’ actual value, the rest of the purchase price being covered by a loan from the stockbroker or investment company, with the stocks themselves serving as collateral. In addition, the increased demand for American manufactured goods in the years immediately following World War I (1914–18) had eventually led to overproduction in various sectors, causing many businesses to lose money and their stock prices to fall.

As Black Thursday unfolded, several major banks and investment companies bought up great blocks of stock in a briefly successful effort to stem the panic of investors. At the end of the day, the market closed only a few percentage points down, and on Friday it recovered very slightly. Wall Street’s calculated show of confidence ultimately failed, however, as nervous investors resumed selling stocks the following Monday and Tuesday (later known as Black Monday and Black Tuesday), when prices declined by a further 12.8 percent and 12 percent, respectively. As stocks declined in value, brokers and investment companies for stocks sold on margin required more money from buyers to compensate for the loss of collateral, and buyers themselves raced to sell stocks to minimize their losses. Black Tuesday is generally considered the last day of the stock market crash of 1929.

The Dow Jones Industrial Average had reached a high of 381 points on September 3, 1929. After the crash, the market continued to decline, and by July 1932 the Dow had fallen to a low of 41—an 89 percent drop from its zenith. The stock market did not revisit the highs seen before Black Thursday until decades later, in November 1954.

In addition to costing investors and businesses millions of dollars, the crash beginning on Black Thursday undermined consumer confidence. The sensational nature of the crash served as a cautionary tale, and consumer and business spending slumped, especially for items that were generally purchased on credit, such as automobiles. The reduction in consumer spending and the ensuing contraction of industry led indirectly to declines in manufacturing and employment. Although the stock market crash of 1929 resulted in significant harm to the U.S. economy, economists still disagree about how directly related it was to the Great Depression: was the crash a symptom of an already ailing economy that would soon collapse, or was it a direct cause of the Great Depression?

In 1932 the U.S. Senate Banking and Currency Committee convened the Pecora Commission (named after the committee’s chief counsel, Ferdinand Pecora) to investigate the crash and to recommend steps to prevent a recurrence. The investigation led to the adoption of the Securities Exchange Act of 1934, which created the U.S. Securities and Exchange Commission (SEC), an independent federal agency that oversees stock markets.