Dow Stock Market History
The American stock market has a history that stretches almost all the way back to the birth of the nation. In 1792, just five securities traded in New York, two bank stocks and three government bonds. Just under 100 years later, in 1884, the Dow Jones Industrial Average, commonly called the DJIA, was first published in the Customer's Afternoon Letter, the precursor to the Wall Street Journal.
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Stock Market Averages
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The Dow is an index, or a composite of stocks composed of leading industrial companies. Stock market averages represent the combined price of a group of company stocks. Averages like the Dow represent a sample taken from a larger group of companies. Think of the averages as a way to measure the health of an entire industry group, just like a thermometer measures the health of a patient. Other major averages are the S&P 500 and the NASDAQ.
Charles Dow
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Charles Dow was a journalist who wrote for the Customer's Afternoon Letter in the late 19th century. At that time, investors found it difficult to make sense of the daily price moves of stocks and bonds. With prices going up one day and down the next, it was not easy to tell if the economy and companies in general were making progress, just bouncing along randomly or losing ground. In response, Dow created a composite of 11 of the share prices of nation's largest companies, most of them railroad, in order to give investors a way to track the general direction of the markets.
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Black Tuesday
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The Dot Com bubble that burst in 2000 is familiar to most people, but stock market bubbles have been with us for a long time. The Roaring Twenties was a time of economic boom in both the United States and Europe. The United States had successfully transitioned from a war-time economy to a peace-time economy, and during this time it emerged as the richest country in the world. This success was reflected in the Dow, which rapidly grew to dizzying levels after remaining relatively stagnant decades prior. But what comes up must come down, and Tuesday, October 29, 1929, come down they did. The Dow didn't bottom until 1932, but not before it had lost 90 percent of its value.
Stagnant Era
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After bottoming in 1932, the Dow and the nation's economy experienced a period of solid and steady growth that lasted over the next 30 years. Around the mid 1960s, growth stagnated. Over the next 18 years the Dow and the economy made no relative progress as the average traded in a flat range until the early 1980s. In early 1983, this range broke to the upside and the Dow once again saw a swift, relatively steady ascent that didn't end until the banking crisis in 2007.
Dot Com Bubble
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Surprisingly, the Dot Com, or technology, bubble had only a relatively small impact on the Dow Industrial Average. In 2000, when the bubble burst, the NASDAQ lost 78 percent of its value before bottoming and has yet to fully recover. The Dow, however, fell only 27 percent during this same period and actually climbed to a fresh new high by 2007.
Banking Crisis
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After surviving the Dot Com bubble relatively unscathed, the Dow didn't fair nearly as well in 2008 when the investment company Bears Sterns collapsed, and the government was forced to bail out the banking and auto industry in order to avoid a total economic collapse like the one that occurred on Black Tuesday. To this day, the Dow has not yet reached back to its 2007 highs, and it may be many years before it does.
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