The rising share prices encouraged more people to invest; people hoped the share prices would rise further. Speculation thus fueled further rises and created an . Because of , investors stood to lose large sums of money if the market turned down—or even failed to advance quickly enough. The average (price to earnings) ratio of S&P Composite stocks was 32.6 in September 1929, clearly above historical norms.
Good harvests had built up a mass of 250,000,000 bushels of wheat to be 'carried over' when 1929 opened. By May there was also a winter-wheat crop of 560,000,000 bushels ready for harvest in the Mississippi Valley. This oversupply caused a drop in wheat prices so heavy that the net incomes of the farming population from wheat were threatened with extinction. Stock markets are always sensitive to the future state of commodity markets and the slump in Wall-street predicted for May by Sir George Paish, arrived on time. In June 1929 the position was saved by a severe drought in the Dakotas and the Canadian West, plus unfavorable seed times in Argentina and Eastern Australia. The oversupply would now be wanted to fill the big gaps in the 1929 world wheat production. From 97c per bushel in May wheat rose to $1.49 in July. When it was seen that at this figure the American farmers would get rather more for their smaller crop than for that of 1928, up went stocks again and from far and wide orders came to buy shares for the profits to come.
Then in August the wheat price fell when France and Italy were bragging of a magnificent harvest and the situation in Australia improved. This sent a shiver through Wall Street and stock prices quickly dropped, but word of cheap stocks brought a fresh rush of 'stags,' amateur speculators and investors. Congress had also voted for a 100 million dollar relief package for the farmers, hoping to stabilise wheat prices. By October though, the price had fallen to $1.31 per bushel. The falling commodity markets in other countries told upon even American self-confidence, and the stock market started to falter.
On October 24, 1929, with the Dow just past its September 3 peak of 381.17, the market finally turned down, and started.
The president of the Chase National Bank said at the time "We are reaping the natural fruit of the orgy of speculation in which millions of people have indulged. It was inevitable, because of the tremendous increase in the number of stockholders in recent years, that the number of sellers would be greater than ever when the boom ended and selling took the place of buying."
by
linadrozd (student)
