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1920s Stock Market — Reading Comprehension

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HSS 11.6.1
RI.6-8.1
RI.6-8.3

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This engaging passage explores the rise of stock market speculation in the United States during the 1920s, a key cause of the Great Depression. Students will learn about how investors used margin buying to purchase stocks with borrowed money, driving prices beyond their actual value and setting the stage for an economic crash. The text is designed to help students analyze cause and effect, understand complex economic vocabulary such as speculation, stocks, and investment, and connect historical decisions to their far-reaching impacts. The passage aligns with HSS 11.6.1 and CCSS.RI.6-8.1, RI.6-8.3 standards. Included are read aloud audio, Spanish translation, and a differentiated version for accessibility. Activities include a multiple-choice quiz, writing prompts, graphic organizers, and a timeline to help reinforce comprehension and critical thinking about this important era in U.S. history.

CONTENT PREVIEW

[Crowd of people gather outside the New York Stock Exchange following the Crash of 1929]
Source: Library of Congress

The 1920s in the United States saw an extraordinary rise in speculation on the stock market. During this decade, many Americans believed they could become wealthy quickly by investing in stocks, or shares of ownership in companies. As the economy boomed, people grew confident that prices would continue to climb. This belief led to risky financial practices that would have serious consequences for the country.

One popular method used by investors was margin buying. This meant people bought stocks using borrowed money from banks or brokers. By putting down only a small percentage of their own funds, investors hoped to increase their profit if stock prices rose. However, this also meant that if prices fell, investors could lose much more than they had originally invested. Margin buying made the market unstable because it encouraged people to take risks they could not afford.

As more investors entered the market, the value of stocks soared. The rising prices did not always reflect the real value of the companies. Instead, they were inflated by speculation and excitement. This created an economic bubble, where assets became much more expensive than they were actually worth. Many people ignored warnings from economists who said the market could not keep rising forever.

Throughout the late 1920s, the stock market became a symbol of prosperity. Newspapers reported on new millionaires and encouraged ordinary citizens to invest. Even people with little financial experience joined the rush, believing they too could make a fortune. The excitement, however, hid the dangers. If prices dropped, those who had bought stocks on margin would be unable to pay back their loans.

By 1929, the market reached unsustainable levels. In October, prices began to fall sharply. Investors who had borrowed money were forced to sell their stocks quickly to cover their losses, causing prices to drop even further. This chain reaction led to the infamous stock market crash of October 1929. The financial panic spread beyond Wall Street, triggering the start of the Great Depression. Banks failed, businesses closed, and millions lost their jobs and savings.

The stock market speculation of the 1920s is important because it shows how risky financial behavior and overconfidence can create economic problems for an entire country. The events of this era taught future generations about the need for regulations and careful investment strategies to avoid similar disasters.

Interesting Fact: On "Black Tuesday," October 29, 1929, the stock market lost $14 billion in value in a single day, shocking the nation and the world.

What is speculation?

Risky investment for quick moneyBuying food for a familySaving every dollar earnedBuilding a new company

What is a stock?

Loan from a bankShare of a companyPiece of real estateType of government bond

When did the stock market crash occur?

October 1929July 1914May 1776December 1941

Why did people use margin buying?

To invest with borrowed moneyTo avoid paying taxesTo start a businessTo buy a house

What happened when prices started falling?

Investors sold stocks quicklyPrices went up even moreMore people borrowed moneyBanks gave more loans

How did speculation affect the market?

It made prices unstableIt kept prices steadyIt stopped inflationIt reduced investments