Halloween is a scary time filled with ghosts and ghouls however for traders a scary day doesn’t usually involve a black cat or a broomstick. In this article we look at the scariest days in trading history..
While there have been a number of major stock crashes, few can compare to the stock market crash of 1929. The crash led to the worst bear market in US history in terms of percentage declines, and it took a quarter of a century for the Dow to recover to pre-crash levels.
The 1929 crash began on October 24, 1929. At the beginning of the day, the stock market was trading at 305.85 and fell approximately 11% on the day. The fall wasn’t huge – more of a major correction – and by the end of the day stocks had recovered to register just a 2% decline. However, there was widespread concern because of the volumes on the day – which were three times normal.
After a one-day period of stability, the market again took a nosedive on October 28, 1929. By the time that the day was over, the market was down 13%. This was despite massive intervention from bankers, who had brought huge volumes of stocks to prop the market up.
The panic continued the next day, as the market shed another 11%. Volumes again were huge, with over 16 million shares traded as investors fled the market. By the end of the day, the Dow was down 25% from its high the previous Wednesday, losing $30 billion in market capitalization – about $400 billion in today’s money.
While modern investors are more used to major losses, the impact at the time was huge. The stock market had been on the rise since 1922 – at an extraordinary rate of almost 20% every year. No one was used to the idea of the stock market going down. Worse still, people had invested on margin – which was a completely new innovation at the time. As soon as the stock market headed south, stockbrokers called in the loans that they had made to investors, causing many people to lose their life savings. The shock led to the Great Depression, which saw unemployment in the US rise to 25%, while those in work saw their wages cut by 42%.
Why did the market crash?
The market had been concerned well before Black Thursday, with the Dow having fallen 20% since the beginning of September. The markets were also worried about a fraudulent attempt by an investor to buy United Steel – which cause the British stock market to fall precipitously. Philip Snowden, the UK’s Chancellor of the Exchequer, characterized US stock markets as an orgy of speculation a few days later, and this was backed up by the US Secretary of the Treasury, who observed that investors seem to think that the price of stocks would rise forever. The press went into a frenzy, highlighting the margin issue, as well as short selling and foreign investors fleeing from US markets. By the time that Black Thursday rolled around, conditions were perfect for the markets to tank – leading to the deepest stock market crash the world has ever seen.
Happy Halloween from the easyMarkets team… trade safe!