Brief History Of US Stock Market (3)

Capital is the tools needed to produce things of value out of raw materials. Unfortunately for them, beginning in September 1929, the stock market began to decline in value as larger investors realized that the stocks were inflated in price. When it happened depends on the current political and economical factors affecting the stock market and how fast the investor could be reassured in the coming stability. Prior to the Great Stock Market Crash, the United States was enjoying a sustained period of economic growth. Many investors became convinced that stocks were a sure thing and borrowed heavily to invest more money in the market. The government decided to take preventive measures for the future to avoid a recurrence of a similar crash. Some countries put a temporary halt to their stock market trading because of this global financial crisis. This was short lived and it crashed again entering a bear market and reaching its lowest point in July of 1932. Many companies and banks also turned to the stock markets for their investments.Stock Market Crash

The short sellers smell blood when they saw that the market was crashing and they made out like bandits, but the effect that they had on the stock market is that they caused the prices of individual stocks to go down so fast and so hard that investors did not have a chance to sell their stock to get out of the market, because the market makers know that the stocks were going to go down and refuse to execute there buy orders.

That kind of panic selling tends to feed upon itself, sending the market spiraling lower for an extended period of time. Brokers in the 1920s were allowing their investors to borrow on average of up to 66% on margin , and this was an unprecedented amount of margin that the market ever experienced. See period from July 2007 until May 2008 and period from August 2000 until March 2002. In the fall of 1928 and the spring of 1929 (see Table 1) 8 more stock splits occur, causing the Dow Divisor to drop to 10.77.Stock Market Crash

There is no numerically specific definition of a crash but the term commonly applies to steep double-digit percentage losses in a stock market index over a period of several days. October 24 (known as Black Thursday) was the first in a number of increasingly shocking market drops. We are told, over and over, that the free market is a sort of natural wonder that guides the economy without need for government interference. Generally, the economy was booming and it’s reflected in massive new investments in the share market.

The days surrounding the stock market crash of 1929 were especially painful for investors who had borrowed money to purchase stocks that had become worthless or close to it. The situation influenced what became a major turning point for the American economy because many of these borrowers, who had leveraged themselves considerably in an effort to participate in the bull market , were ruined financially.Stock Market Crash