Historically speaking, Oct. 24 has never been a good day for the stock market (or much else for that matter. No, really – look it up).
So, why has this day become nightmarish for those on Wall Street?
It all started on Oct. 24, 1929.
Black Thursday
Prior to Thursday, Oct. 24, 1929, the stock market and U.S economy had been experiencing rapid expansion and record highs thanks to low unemployment rates and the flourishing automobile industry. Between August 1921 and September 1929, the Dow increased six-fold, leading to the eight-year span being known as the “roaring twenties.”
But as quickly as the twenties came roaring in, the good times disappeared. On Oct. 24, the Dow unexpectedly plunged 12.8 percent, leading frightened investors to trade at record numbers. In just one day, 12.9 million shares were traded.
The decline continued to the following week. On Monday, Oct. 28 the market fell another 13 percent. On Tuesday, Oct. 29 the market fell again by an additional 12 percent.
What happened on Black Thursday would set off a cascade effect throughout the country. Mainstreet investors eager to get in on the record earnings happening just a month earlier, borrowed money “on margin” from banks and brokers, hoping to not only pay for the money borrowed, but to see a large return on investment, as well.
In some cases, the investors who borrowed on margin paid just 10 percent of the share value. At the time, it seemed reasonable to invest using credit and loans since the market was performing so well.
Despite the market climbing 20 percent each year until 1929, the market was not invincible. The not-so-perfect storm of rising interest rates, mass panic, investor overconfidence and mounting debt all combined to make the worst decline in U.S. history.
Bloody Friday
Nearly 80 years after the Crash of ’29, on Oct. 24, 2008, U.S. and world stocks crumbled as 10 percent drops in indexes brought financial institutions and mainstays around the world to their knees.
The rumblings started in September, with the announcement that Lehman Brothers had filed for bankruptcy.
In the U.S., investment banks were on the brink. While Goldman Sachs and JP Morgan Chase plummeted in value, banks such as Wachovia and Washington Mutual collapsed.
But this time, the crash went global. The economies of entire countries collapsed in Iceland, the UK and Greece.
By early October 2008, Iceland’s three largest banks seized to exist.
In Britain, emergency powers were granted to freeze the assets of the banks’ UK subsidiaries. On Oct. 13, three British banks were bailed out to avoid imminent collapse.
On Oct. 24, 2008 the global stock market crash occurred.
In his testimony to the U.S. Committee of Government Oversight and Reform, Alan Greenspan called the crisis “a once-in-a-century credit tsunami.”
Politicians and experts around the world reverberated Greenspan’s comments, triggering global investor panic.
In the panic of the day the Dow dropped 3.6 percent ultimately leading to 15 U.S. banks failing.
It’s been ten years since the financial crisis of 2007-2008 and nearly a century since the crash of ’29, but if history teaches us anything, it’s that it can happen again.
AdvisorNews Managing Editor Cassie Miller may be reached at cassie.miller@Adnewsfeedback.com. Cassie has an extensive background in magazine writing, editing and design. Follow her on Twitter @ANCassieM.
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