![]() The Board’s opinion stemmed from the text of the act. The Board asserted that the “Federal Reserve Act does not … contemplate the use of the resources of the Federal Reserve Banks for the creation or extension of speculative credit” (Chandler 1971, 56). ![]() The governors of many Federal Reserve Banks and a majority of the Federal Reserve Board believed stock-market speculation diverted resources from productive uses, like commerce and industry. Borrowed money poured into equity markets, and stock prices soared. The stocks that they bought served as collateral for the loan. Purchasers put down a fraction of the price, typically 10 percent, and borrowed the rest. A new industry of brokerage houses, investment trusts, and margin accounts enabled ordinary people to purchase corporate equities with borrowed funds. Ordinary men and women invested growing sums in stocks and bonds. Automobiles, telephones, and other new technologies proliferated. The financial boom occurred during an era of optimism. (Source: FRED, (graph by: Sam Marshall, Federal Reserve Bank of Richmond) Enlarge ![]() The index did not reach the 1929 high again until November 23, 1954. The index declined until July 8, 1932, when it closed at $41.22. As shown in the figure, the index peaked on September 3, 1929, closing at 381.17. Minor tick marks indicate the first trading day of the year. Chart 1: Dow Jones Industrial Average Index daily closing price, January 2, 1920, to December 31, 1954. The Dow did not return to its pre-crash heights until November 1954. The slide continued through the summer of 1932, when the Dow closed at 41.22, its lowest value of the twentieth century, 89 percent below its peak. By mid-November, the Dow had lost almost half of its value. On the following day, Black Tuesday, the market dropped nearly 12 percent. On Black Monday, October 28, 1929, the Dow declined nearly 13 percent. The epic boom ended in a cataclysmic bust. After prices peaked, economist Irving Fisher proclaimed, “stock prices have reached ‘what looks like a permanently high plateau.’” 1 The Dow Jones Industrial Average increased six-fold from sixty-three in August 1921 to 381 in September 1929. Share prices rose to unprecedented heights. market indices, after the Dow Jones Transportation Average.The Roaring Twenties roared loudest and longest on the New York Stock Exchange. The factor is changed whenever a constituent company undergoes a stock split so that the value of the index is unaffected by the stock split.įirst calculated on May 26, 1896, the index is the second-oldest among U.S. The value of the index can also be calculated as the sum of the stock prices of the companies included in the index, divided by a factor, which is currently approximately 0.152. Furthermore, the DJIA does not use a weighted arithmetic mean. It is price-weighted, unlike stock indices, which use market capitalization. The DJIA includes only 30 large companies. stock market compared to a broader market index such as the S&P 500. Many professionals consider it to be an inadequate representation of the overall U.S. The DJIA is one of the oldest and most commonly followed equity indexes. ![]() The Dow Jones Industrial Average, Dow Jones, or simply the Dow, is a stock market index of 30 prominent companies listed on stock exchanges in the United States.
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