Black Tuesday

Black Tuesday Definition

Black Tuesday refers to October 29,1929, when many investors panicked and started selling their shares on the new york stock exchange resulting in a trading volume of 16 million shares and decline in the Dow Jones industrial average by more than 12% in a single day.

It was the beginning of the 12-year great depression, which had a significant impact on industrial companies. It occurred during World War 1 when many Americans started migrating into more popular places in order to have an improved life.

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How did the Black Tuesday Market Crash of 1929 Start?

  • On March 25, 2019, there was a warning signal from the federal reserve with regards to excessive speculation, which had a negative impact on the stock market, forcing people to sell their shares due to fear.
  • After some days, there was an announcement by the national city bank in order to fund $25 million in order to save the falling stock markets.
  • After the funding, the situation came under control for some time; however, the American economy started showing signs of trouble.
  • On October 24, 1929, there was massive selling resulting in a fall in the index by 11% creating panic among the investors in the market.
  • On October 28, 1929, known as the black Monday, many investors received margin calls from the brokers to settle the position resulting in more pressure on the market.
  • On October 29, known as the Black Tuesday, about 16 million shares traded in panic selling with no buyers to buy the stock, and there was a decline in the dow by ~12%. Hence black Tuesday was the beginning of the great depression.

Between 1929 and 1932, industrial production in the united states fell down by more than 46% and foreign trade by more than 70 %, causing the economy to slow down. The stock market crashThe Stock Market CrashA stock market crash occurs when stock prices in all sectors begin to fall rapidly. It is often the result of global factors such as war, scam, or the collapse of a certain industry. In such a crash, panic acts as a catalyst.read more led to the great depression in the European continent, with many salaried people losing their jobs and protesting on the road. The police had to control the protest by harassing the protestors, which resulted in the violation of public order. It was this place where the aggressive twenties were at a complete halt, and there was an era of this great depression that was hovering around the world, thereby pressurizing the economy.

  • Below mentioned are some of the statistics of the new york stock markets.
    • Oct, 28,1929 – (12.82%) Dow closed to 260.64
    • Oct, 29,1929 – (11.73%) Dow closed to 230.07

Opportunities that Black Tuesday 1929 Created For Investors

Due to the sudden fall in the stock prices, this was the sweet spot for the investors who bought the shares at throwaway prices. It was a great time to acquire new customers to invest their money in the financial marketsFinancial MarketsThe term "financial market" refers to the marketplace where activities such as the creation and trading of various financial assets such as bonds, stocks, commodities, currencies, and derivatives take place. It provides a platform for sellers and buyers to interact and trade at a price determined by market forces.read more since the markets were at an all-time low. This had a massive impact on the margins of the mutual funds since the average cost of the investments came down drastically and was poised to take a bigger return.

It also resulted in a heavy volume of sales of the products since people were buying the same at throwaway prices. It enabled even poor people to enter the financial markets and earn high returns in the future. Many retailers in the industry saw this Black Tuesday as a business opportunity since they started clearing their old stocks in order to fill the gaps with fresh inventory before the festive season.

There was very heavy discounting done by the retailers in order to boost the sales and take advantage of the great depression in order to clear out the stock and fill the shop with new fresh stock.

How Most Investors Suffered during Black Tuesday 1929?

The investors lost $30 billion in investments by selling the equity stocks at a very discounted rate on the stock exchangeStock ExchangeStock exchange refers to a market that facilitates the buying and selling of listed securities such as public company stocks, exchange-traded funds, debt instruments, options, etc., as per the standard regulations and guidelines—for instance, NYSE and NASDAQ.read more in order to generate sufficient funds required for their survival and growth. Thousands of brokers started demanding margin calls from their investors in order to cover the open position. Tremendous panic in the stock markets among investors due to the global selloff because of the fall in the prices.

Start of the great depression around the world, which hampered the financial and the ecosystem of the globe, thereby putting pressure on the federal reserve to hike the rates in order to control the economy. It led to global economic collapseEconomic CollapseAn economic collapse refers to a severe contraction in the economy led by an extraordinary event (financial or structural) which is not a part of the normal economic cycle. It may lead to a decline in national growth, a rise in unemployment, and sometimes social unrest; therefore, it requires government or monetary authorities intervention.read more in other countries as well as leading many people to leave their jobs and closing down the business operations of the company. Due to the economic slowdown, many people started losing their jobs, and the system came on a standstill with many banks and financial institutions going on a toss. All the global investors had panic and started selling off their equity stake in companies.

Conclusion

Black Tuesday was one of the worst days in the financial services industry losing enormous wealth from the investors. This day will always be remembered by the investors in the history since it was the beginning of the great depression, which had shocked the entire economy and also simultaneously led to many financial reforms in the world which laid down guidelines to have a smooth economy.

This article has been a guide to what is Black Tuesday and its definition. Here we discuss the history of Black Tuesday 1929 along with how it affected the investors. You can learn more about financing from the following articles –

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