Without hindsight bias, was it predictable?
Here’s a prior answer that I believe answers your question. *I am sorry I don’t know how to link to a user the direct comment etc. Maybe someone could clean this up? u/democrat860
TLDR: Yes, but it would have been a gamble. The best people got it wrong, and the worst got it right.
From the late 1920s, there was a clearly discernable decline in productivity growth. Government agencies tracking steel production saw it first, but by 1927 the Fed was weighing strategies for managing it. Despite this, economic growth continued unabated due to low interest rates, which encouraged both loan taking and share buying.
The Fed at the time was dominated by what DeLong (1990) calls liquidationists, strong-form Austrian school economists who believed the economy was self-correcting because bad companies would collapse and new companies would be more productive. Their policy recommendation was that since firms would self-stabilise, governments should aim to prevent consumers from suffering adverse wealth shocks. It was deemed necessary to stop share prices from climbing increasingly further from their intrinsic values, which would increase the risk of sudden market corrections that would wipe out consumer wealth.
The way to do this would be to stem the flow of credit, which affected share prices through multiple channels. NY Fed Governer George Harrison favoured interest rate hikes, even though most other members of the Fed Board believed that such drastic action during a productivity shock might cause the economy to collapse. Eventually, they approved the hike, and the subsequent interest rate increase instantly spread to global markets, slowing down the global economy through multiple channels, which eventually collapsed.
It should be reiterated that debate over what the right course of action should be was exceptionally heated. The Austrians were being challenged by Pre-Keynesians like Keynes himself, who believed that such policies would lead to significant periods of painful adjustment before stabilising, and proto-Monetarists like Irving Fisher, who was starting to develop a theory of debt deflation. On one hand, many contemporaries did not believe the Fed would engineer a sudden demand shock just to calm stock markets. On the other hand, once the Fed had already acted, there was little that could be done. Both Keynes and Irving Fisher went completely bankrupt after predicting that the stock market was stabilising at a plateau, chiefly because their expectations about other people's expectations were not entirely accurate.
The one guy who seems to have called it accurately, Roger Babson, appears to have been running on some theory based on Newtonian physics. Suffice to say, while Fisher and Keynes, and even Austrians like Hayek, are considered economic gods, Babson is not.
I'm a former Investment Manager who has extensively studied market history. Every crisis has warning signs and some people see these beforehand. My general view on the this question, however, was that the vast majority of people (even "knowledgeable people") did not see the crisis coming and could not have foreseen it. My view is based on the idea that most of the actions that led to the Great Depression were difficult to predict and far from "inevitable" in 1928.
Market Valuation
First off, let's look at some metrics. Over the past 100 years or so, the average market P/E ratio (i.e. ratio of stock prices to earnings) has been around 15-16x. In other words, on average, you'll pay 15 or 16 times earnings to purchase stock in a company. There are reasons why you'd pay more (e.g. high growth, future expectations) or less (poor governance, low growth, negative growth), but this is the market average over time.
In October 1928, the market P/E ratio was above-average, but not that far above the average. There are multiple different sources for this data and I'll link to a few:
You'll note that most sources will put the market P/E ratio (gauged by the S&P estimate) around 17x in October 1928. So above the historical market average, but just barely, and you'll note that you find many periods where the market P/E was above 17x and nothing bad ever happened (note these graphs are the S&P in terms of P/E ratio; not absolute values, so P/E ratio can decline without the market declining). So in terms of valuation, the market of 1928 didn't necessarily stand out as "expensive" in the same way that it did during the late 90s / early 00s Tech Bubble, for instance, where the market P/E surged over to over a 45x P/E ratio.
This is not to say there weren't areas where speculative activity might've driven the market to "bubble" levels. One example from the 1920s is the Florida Land Boom. However, it's not that unusual for one segment of the economy or another to be in a "boom" at any given time. Overall, there's nothing that particularly stands out as that odd about the 1928 market when put into historical context. And the late 90s Tech Bubble is an example where the market was clearly in a bubble, but the collapse of that bubble only resulted in a very mild recession; not a major depression. For this reason, I tend to reject the stock market centric views on the Great Depression.
Rather, the market collapse had more to do with macroeconomic and global geopolitical considerations rather than excessive market valuations. There are different hypotheses on what caused The Great Depression but some explanations deserve more weight than others.
Monetarist View
The most commonly accepted view on the Great Depression is the Monetarist view.
Milton Friedman and the Monetarist View
The Monetarist view was first presented in Milton Friedman and Anna Schwartz's seminal economic work: A Monetary History of the United States: 1867 - 1960.
I don't disagree with the Monetarist view; I merely view the trade war (discussed below) as a bigger cause than monetary policy, rather than the reverse. The Monetarist view says that the US Federal Reserve Bank left interest rates too low for too long, fueling a speculative boom, which turned to bust.
Monetarists also assert that while the Fed left interest rates too low in the "boom years" (e.g. 1926 - 29), they then responded by raising interest rates too high once the recession (and eventual depression) started. In essence, the Fed should've taken the reverse course and raised rates higher from 1926 - 29 and then lowered rates once the economic contraction began.
The Global Trade War
Another common explanation is the global trade war. I personally view this as more important to understanding the depression than monetary policy, but I may be in the minority. Regardless, even those who don't subscribe to my view still believe that the global trade war exacerbated the recession.
To give a background for this, it's important to understand the United States' political landscape in the 1920s. The President is Calvin Coolidge. The Republican Party controls Congress. The Republican Party of 1928 tended to favor protectionism of American industries and businesses. The Congressional Republicans passed several measures in the 1920s in this vein; including most notably the McNary-Haugen Farm Relief Act.
The background for McNaury-Haugen starts with World War I. As European agriculture is decimated by the war, food prices skyrocket, and American farmers rush in to meet the demand. The result of this was that American farmers had great years during the war, but once European agriculture started to return back to normal levels, food prices plunged, and there's too much supply in the US as a result. This creates an odd scenario where there is a major agricultural depression in the US during the middle of one of the biggest economic booms. McNary-Haugen would've responded to this by creating a Federal farm bureau that would've fixed agricultural prices back at the "boom market year" prices with the Federal government as a major buyer (with large subsidies).
Calvin Coolidge vehemently opposed McNary-Haugen in spite of strong support from his party. He vetoed the bill multiple times.
Once Coolidge left office, the supporters of McNary-Haugen decided to shift their focus away from farm prices and over towards tariff policy, which would eventually be realized with the Smoot-Hawley Tariff Act. Herbert Hoover originally opposed these new tariffs, but would relent to the demands of his party and sign the bill into law in 1930. Smoot-Hawley increased US tariffs by over 40%. From 1929 to 32, US exports and imports both plunged over 40% (*).
The primary debate is over whether Smoot-Hawley was a major cause of the Great Depression or merely exacerbated it. Here's a more thorough article outlining the position that trade policy was the biggest cause of the Great Depression.
The Smoot-Hawley Tariff and the Great Depression
One thing to note is that while Smoot-Hawley wasn't enacted till mid 1930, the stock market crash started in late 1929. How can we explain this discrepancy?
The best explanation is the nature of American legislative policy. Smoot-Hawley was originally passed by the US House of Representatives in May 1929. The stock market started showing signs of weakness and volatility after that and European nations started to talk about retaliation at that time, as well. So while the tariffs weren't officially implement for another year, the "future market expectations" started to change in mid 1929 as a result of Smoot-Hawley's passage, thus triggering the recession.
(*) Note that the link from FRED might be time-limited. If link fails, go here and here and change input years to 1929 to 1940 to get a sense of the decline.
Overall Answer
While there are multiple explanations for the Great Depression, the biggest takeaway to answer the OP's question is that there would've been no obvious warning signs for most investors and people in finance. Market valuations, while slightly above-average historically, were not at unreasonable levels in 1928.
Rather, in order to predict the crisis, one would've had to have been focusing largely on monetary policy (which wasn't studied much at the time) and predicted geopolitical events and shifts in trade policy.
Understanding of monetary policy only became more common after Milton Friedman and Anna Schwartz publish their Monetary History of the US in 1960.
In order to predict the trade war in 1928, one must've predicted 4 things:
Overall, I feel like it would've been difficult for anyone to have predicted all of this.
Here is my follow-up question:
I know that, after the crash, there were major reforms put in place that still play a huge role today, including the creation of the SEC, 10b-5, and Glass-Stegall. Is there a consensus view on the extent to which malfeasance* contributed to the crash? Does the general consensus that macroeconomic forces (even if we debate which ones and why) were the main driver suggest that criminality did not have much of a systemic impact?
*I know this is a tricky and very controversial term. I mean it in the broad sense and feel free to critique the idea. I think there is a fundamental difference between "unscrupulous investors misread the market and got too risky" and "criminal syndicate uses stocks as its medium." Think the difference between Alan Schwartz and Bernie Madoff/Allen Stanford.