How did the U. S. Stock market contribute to economic instability before the Great Depression?

The Great Depression of the 1930s was the largest recession in history and its causes were overproduction of goods and the expansion of unbridled credit by banks.

The American economy was experiencing a period of euphoria during the 1920s. The US had become the world's leading economic powerhouse and was the largest supplier of manufactures to Europe.

The situation began to change in the late 1920s. Rebuilt from World War I, European nations drastically reduced imports of industrialized and agricultural products from the United States. As exports to Europe declined, domestic demand was not sufficient to dispose of all corporate output and product inventories increased. Most of these companies had shares in the New York Stock Exchange and millions of Americans had investments in these shares.

In October 1929, realizing the devaluation of the shares of many companies, there was a rush of investors intending to sell their shares. The effect was devastating as the stock depreciated sharply in a few days. Very wealthy people moved overnight to the poor class. The number of business failures was huge and unemployment reached almost 30% of workers. Thus the US plunges into the biggest economic crisis in its history, the Great Depression.

The stock market crashed right before the Great Depression, causing many to lose money in the process.