The First Cracks Appear in the Dow's Monster Bull Market


On this day in economic and financial history...

The Dow Jones Industrial Average was six months away from an all-time high that wouldn't be matched again for a generation when the trading of Mar. 26, 1929 revealed a dangerous frothiness in the market. Headlines and subheaders in The New York Times read: "Stocks Crash then Rally in 8,246,740-Share Day," "Market Sets New Record," "Stocks Dumped as Loan Rate Mounts, Sending Wide List Down," "300 Issues at Year's Low," and "$13,874,000 Bond Sales Also Biggest for 1929." For all this volatility, in what was then the most active day in exchange history, the Dow ended up a single point lower than its previous close at 296.51.

The day's record volume, 1.3 million shares higher than the old record, was a reaction to Federal Reserve warnings that credit issued for market speculation ought to be restricted. This was an evidently sensible policy, as many brokerage firms allowed margins of 25% or lower, even during the worst days of the autumn collapse. However, a junkie can't quit cold turkey without suffering serious withdrawal, and thousands of levered-up investors were forced into margin calls. The Times wrote:

Stocks dropped like plummets ... with no visible signs of support. Thousands of accounts were wiped out in this violent swing and many thousands of speculators, on their own volition and in a stage bordering panic, committed financial hari-kari. Every brokerage house in New York and throughout the country was jammed to the doors with excited customers.

The primitive tickers of the day were not equipped to handle such immense volume, and closing prices from 3 p.m. EDT were not printed out until after 5 p.m. EDT. As much as $400 million in brokers' loans was estimated to be lost over the previous week's trading, and a common refrain on Wall Street was "The back of the bull market has been broken."

It was not quite finished, but the great rise of the Roaring '20s was nearing its end. The Dow had only 29% more to rise before it peaked in early September of 1929. After the crash was through, it would take a quarter of a century -- until 1953 -- for the Dow to reach the closing price of March 26, 1929.

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