Little Bits of History

July 8

Posted in History by patriciahysell on July 8, 2017

1932: The Dow Jones Industrial Average (DJIA) reaches its lowest point during the Great Depression. The Dow was created by the Wall Street Journal editor Charles Dow and was first calculated in 1896. Dow and his business partner, Edward Jones, brought together an index showing how 30 large publicly owned companies in the US were faring in the stock market. The average is price weighted to compensate for stock splits and other adjustments. It isn’t a true average of the thirty prices of the stocks, but is the aggregate of the thirty stocks divided by a divisor based on these compensations. This has given a more consistent value for the index. It was devised to give an indicator of the performance of the industrial sector of the market.

The thirty industries have changed 51 times in the years since The Dow was invented and General Electric has had the longest continuous presence on the list from 1907 to the present day, but it was also included in the original list, fell off, and was added back. The most recent addition came in 2015 when Apple was added. Microsoft has been part of The Dow since 1999. The Great Depression began in 1929 and most economists believe the precipitating factor was the collapse of the US Stock Market on October 29, a day known as Black Tuesday. A minority of economists believe the collapse was a symptom and not the cause of the largest worldwide depression in the 20th century.

The Roaring Twenties, the years after World War I ended, was a time of excess and wealth. Optimism gave a look into a brighter future. Many rural people abandoned their farms and moved to the cities to find a more prosperous life. The families who remained on the farms were faced with financial woes while their city cousins were wildly speculating in the markets. In the spring of 1929 there were already warnings of an impending collapse and the market and The Dow were both fluctuating. As money tightened, the economy grew tighter as well. And then the collapse came and domino effects spread the crisis around the world.

On this day, The Dow reached its lowest point, but rallied slightly before closing. At its lowest, The Dow was 40.56 and the day closed at 41.22. This was a 90% drop in the value of the index from the high point of 1929. There was panic selling due to a drop in consumption which led to lower productions and more unemployment. While the markets and economies would eventually recover and slowly inch upwards, it took nearly a decade to do so. President Roosevelt came to power during this time and his policies, along with the anticipation of the US entering World War II finally led to an economic recovery and The Dow slowly followed in its wake. Today, The Dow is over 20,000 and continues to fluctuate as do the markets worldwide.

Market forces and capitalism by themselves aren’t sufficient to ensure the common good and to limit the concentration of wealth at levels that are compatible with democratic ideals. – Thomas Piketty

Lost wealth may be replaced by industry, lost knowledge by study, lost health by temperance or medicine, but lost time is gone forever. – Samuel Smiles

Rule No.1: Never lose money. Rule No.2: Never forget rule No.1. – Warren Buffett

A business that makes nothing but money is a poor business. – Henry Ford

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Bear Market

Posted in History by patriciahysell on July 8, 2011

July 8, 1932: The Dow Jones Industrial Average [DJIA] reaches its lowest point during the Great Depression. The Dow bottomed out at 41.22. Charles Dow founded the stock market index on May 26, 1896. At that time, it represented the dollar average of 12 stocks from leading American industries. The components of the DJIA have changed 48 times during its 115 year history. Today, the Dow consists of 30 major American companies from 3M to Walt Disney.

Dow Jones Industrial Average from 1928 to 1954

The Great Depression was triggered by the crash of Wall Street in 1929. The market closed on October 28 at 260.64 with a drop of 12.82%. The following day, it closed at 230.07 for another fall of 11.73%. These numbers are nothing compared to the 1987 drop when on October 19 the market closed at 1,738.74 for a fall of 22.61 percent. On September 29, 2008, the market dropped by 777.68 points, which is the largest figure for a fall, but that number represented only 6.98% of the market’s value.

The Great Depression did not happen over a one day drop in the markets. There were many problems addressing the world at large and were not solely based in the US. However, the US Stock Exchange began seeing stock prices fall around September 9, 1929. By October 29, with two days of losses over 10% each day, the market was said to crash. The day is known as Black Tuesday. This is said to be a Bear Market or one that is a general decline over a period of time. It is the shift from a time of investor optimism to time of pessimism laced liberally with fear. A Bear Market shows a decline of value of more than 20% over at least a two-month period.

The Bear Market of the Great Depression erased 89% of the DJIA. The stock market index was around 386 at the beginning of the decline. And by this date, with a rating of only 41.22, much of the US and the world’s economies were in shambles. Not only did the markets crash, but personal income, tax revenue, profits and prices, and international trade all plunged as well. International trade dropped by more than 50% and unemployment in the US rose to 25%. Other countries had unemployment rates as high as 33%. Not only did industry suffer, but this was also the age of the great Dust Bowl and farming also was devastated. Crop prices fell as much as 60%. By the mid-1930s there was some hope of recovery but the world did not really put out of the Depression until the beginnings of World War II.

“We will not have any more crashes in our time.” – John Maynard Keynes in 1927

“This crash is not going to have much effect on business.” – Arthur Reynolds, Chairman of Continental Illinois Bank of Chicago, October 24, 1929

“Some pretty intelligent people are now buying stocks… Unless we are to have a panic — which no one seriously believes, stocks have hit bottom.” – R. W. McNeal, financial analyst in October 1929

“The end of the decline of the Stock Market will probably not be long, only a few more days at most.” – Irving Fisher, Professor of Economics at Yale University, November 14, 1929

Also on this day:
The Wall Street Journal – In 1889, The Wall Street Journal begins publication.
Con Man – In 1898, Soapy Smith was gunned down.