Great Depression Stock Market

In the 1920s, the New York Stock Exchange was the most prominent stock market in the world and Wall Street, where it was located, one of the leading world financial centers. Because of the economic boom in the United States during this decade, stocks were seen as a sure bet by many investors and shares kept rising. Investing in the stock market was no longer just for entrepreneurs.

The man in the street began investing in the stock market with his savings, or even mortgaged his home to invest in the stock market that “always went up”. Stock was also being bought up on margin, that is borrowing money on the value of the stock being purchased. Using the leverage of margins, an investor could put in one dollar of his own money and borrow nine dollars worth of stock. Then if the stock value went up by only 1%, the investor would make 10% profit. Early warning signs were showing during the summer of 1929 and serious investors were beginning to get a bit anxious. Stock market declines came to a head in October 1929. Black Thursday (October 24) was the first market drop shock, followed by Black Monday (October 28) and then the worst decline on Black Tuesday (October 29).

The collapse of the United States stock market helped trigger the Great Depression. Although the market recovered slightly in early 1930, many investors were very wary and, not only did they not invest in the stock market again, but also reduced their spending on consumer goods which had a severe effect on the manufacturing industry. The sales of luxury goods, such as automobiles and radios, were particularly hard hit. Commodity prices also fell and job losses in the agricultural, logging and mining sectors were very high. The US government made frantic attempts to protect these industries and introduce the Smoot-Hawley Tariff Act in 1930. This resulted in the economy of foreign countries being pulled down as protectionist policies severely hampered global trade among industrialized countries.