Causes of Stock Market Crash in 1929

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Interestingly, economists that have later examined the fundaments from the 1920s believe there was not a stock market bubble ready to burst by 1929. In fact, most of the stock values had merely tracked the rise in expected dividend payments. The economy was expanding rapidly and companies were enjoying this expansion. Those same companies that were enjoying these prosperous years had increased dividends and were expected to continue to do so.

The stock market continued to track the economy following the crash of 1929 - this time in the negative direction. Since consumer outlook was decidedly pessimistic, the economy contracted sharply. Companies were hard hit by the decrease in consumer spending and this trend would continue for nearly three years.

Therefore, apart for the panic selling on those few days in October of 1929 that would cause sharp price declines in common stock, there was nothing unusual or "inflated" about stock prices in the days preceding or following the stock market crash of 1929. Panic selling brought the market to the ground. The simple laws of supply and demand were in place - with no one left willing to buy stocks and everyone trying to sell at the same time, the market had nowhere to go but down.

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