Why Did The Stock Market Crash

On October 24, 1929, known as Black Thursday marked the worst stock market crash in U.S. history as unsettled investors sold off their investments as the skyrocketing stock prices plummeted into a free fall. Yet, what influenced the initial price of a stock to increase and how did the market crash suddenly? At a fundamental level, the supply and demand in the market determine the stock price. If more stock investors are buying stocks than selling, the price of the stock increases. While, if more investors are selling than buying, the price of the stock declines. Hence, if a significant amount of investors sells than buy in the market, there would be a chain reaction of sellers as the value of the stock would drop significantly, which urges others to sell the stock before the price falls at incredible rates.
Furthermore, Robert Shiller suggests that the current markets show signs of a bubble as stock values are higher than the value of earnings by using the CAPE ratio or “the price-to-earnings ratio based on average inflation-adjusted earnings from the previous 10 years” (Forbes). Shiller claims that the CAPE Ratio is too high as the current ratio is 25 compared to the average of 17, which resembles a bubble as earnings and profit margins are too high. Furthermore, pops in bubbles are inevitable as the NYSE stocks are volatile as they have no fundamental value. The U.S. runs on a capitalist economy and the ultimate destiny as an individual is to earn a profit. The idea of persuading investors to continue to buy a “stable” stock is utterly impossible as individualism has influenced investors to only focus on themselves. In turn, Capitalism has speculated investors into gambling in the short-term as the vicious cycle of bubbles and crashes continues