The beginning of Stock market in America.
Trading in the stock exchange markets has a definite origin. Ideally, the American Stock Exchange represented by the acronym (AMEX). Historically, the trading in the stock market commenced in the 1800s periods. This transition was referred to as the curb exchange. Historically, the origin shows that the stock exchange in the United States was established with the intention to develop a stable economic power. This was the primary disquiet of the United States economic stimulus policy. According to the historical records, this occurred during the times of Alexander Hamilton, the first secretary of the treasury at that time. This executive secretary carried out a study of the stock exchange in the European region. Therefore, he carried out this research with the hopes of establishing the same category of a stock market place within the United States (Dorodnykh and Ekaterina, p. 156). Ideally, during Hamilton’s term between (from year 1789 to 1795) as the United States secretary of the treasury developed the initial stages of creating a market place of stock. He promoted the development of the marketplace via the establishment of the American Stock Exchanges (AMEX).
Therefore, the trading of stock markets in the United States was established by Hamilton at the beginning of the 1800s. He encouraged the trading of government securities based on the corner of Broad Street in the New York. Ideally, the trading of this stock market evolved with time towards the inclusion of stock issuing of corporations. For instance, immediately some of the corporations settled on issuing stocks to enable raising money for their business, this facilitated the growth of the trading activities in the stock exchange market. However, the stock exchange in the American region is said to have moved towards the new quarters of Trinity in the year 1921. For example, there was a Tuesday when investors traded some 16 million shares on the American Stock Exchange in as a single day.
The names of the stock indexes on the market today the stock to which each trade
Stock market indices represent a method that is used to value a section of the stock markets. Ideally, the indices are computed from prices of selected stocks that are typically a weighted average. Ideally, stock indices are used as tools that are used by the investors and other financial managers to provide a description of the market with the intention of comparing the returns on the specified investments. There are several types of stock indices that are vibrantly used in the stock market today. They include:
Wilshire 5000 Total Market Index
This is a market capitalization category of weighted index. It is comprised of myriad companies within the United States. It is effective in trading publicly traded companies stocks. That is; this index is used work on publicly traded stocks.
The Dow market index
The Dow Jones Industrial Average (DJIA) is identified as one of the current but ancient, well-known indices used in the world (Dorodnykh and Ekaterina, p. 156). It is frequently used in the world. It is essential in the trading stocks of the largest and intensively influential companies in the United States.
The S & P 500
Ideally, the Standard and Poor’s 500 stock indices are a more diverse and larger index in the stock exchange market. This index is used to trade 500 of the most broadly traded stocks in the United States which represent an approximate of 70% of the aggregate stocks in the United States.
The NASDAQ Composite Index
It is one of the most of adopted stock market indices inside and outside the United States. It is mainly known as the most used index in trading technology stocks inside and outside of the American boundaries.
The Russell 2000
The Russell 2000 is one of the market capitalization weighted index. It deals with the smallest 2000 stocks whereas Russell 3000 deals with 3000 largest- publicly traded stocks.
Amex composite index
The Amex composite index is a market capitalization and weighted category of indices. Ideally, it depicts that the weight of each stock depends on the level of price of the shares, and the number of outstanding shares there are. Ideally, the index is comprised of stocks that symbolize the equity category of markets.
Stock Market Crash Of 1929
The America’s economy had been experiencing turmoil during the World War 1 until it ended in the late 1918. As a result, optimism among Americans prevailed as inventions in Airplanes, Radio and other economic sectors dominated the Country’s economy. People emigrated from their rural homes to the urban cities in search of better livelihoods. Additionally, Most of the people who had reserved their savings at home revived them and invested the cash in the stock market following positive upsurge in the economy.
Many people from all sectors withdrew their money from banks while others sold their assets in order to tap the rising trend in the stock market. Consequently, prices increased as interest rates reached an unshakeable pitch (Ojala and Turo, p.16). Stockbrokers introduced “buying stocks” where buyers could purchase shares with a certain percentage of their money and borrow the rest from their stockbrokers. The approach was very convenient for most citizens who had no enough money yet they needed to gain from the stock boom. The stock crash was not an abrupt accident as the market had incurred a mini crash on 29th March 1929.Fortunately National City Bank gave $25million as credit to borrowers to avert a crisis.
The 1929 crash attained its climax on 24th October 1929 when pessimisms increased, and many investors started selling their shares as stockbrokers alerted the investors to return their margins with the market losing 11% of the market value. By the time, the trading day closed 12.9 million shares had been sold. The crash continued until Tuesday, 29th October commonly known as the “Black Tuesday”. Many investors were selling their shares at lowest prices in order to repay the margin calls and the loans they had borrowed in the banks. Commercial banks were also selling their shares to recover the cash deposits for their clients. By the time of closing, 16million shares had been sold, and the panic continued thus causing the crash.
Causes of stock market Crash
Over pricing of share prices
Margin buying entailed a situation where brokers would allow investors to buy shares with a 10-20% of the cost while the brokers would cater for the remaining amount until such an agreed time when the investors would accumulate cash and repay the rest of the amount. The incentive invited a large number of low income earners thus causing a boom in the stock market. As a result, stock price rose sharply to a point that it could not rise anymore but decline. The decline led to the crash as people continued to sell their stocks to avoid incurring losses.
Weak banking policies
The Federal Reserve policies were reluctant in that they had not created a cash reserve ratio for the banks, minimum lending amount and regulation of the lending rates. As a result, commercial banks lend money to the depositors at a low interest rate thus attracting mass borrowing. Moreover, most commercial banks lend money to their clients at an amount above their amount deposited. Additionally, commercial bank managers decided to seize the boom opportunity and used the depositor's amount to buy stocks. These actions led to shutdown of banks when the stock prices dropped leading to crash of the stock market. Borrowers who had invested their money could not sell their stock since everybody was selling and, therefore, could not repay the amount borrowed.
Pessimistic Statements from public officials and experts
England’s Exchequer was quoted saying that America’s stock market was a “perfect orgy of speculation” The statement caused panic as people feared that the prices would start falling. Moreover, Subsequent headlines by New York Times and The Washington magazine that featured between 24th Thursday and 29th Tuesday such as “Huge selling wave creates near panic as the stock price falls” caused panic as people resulted in selling their stock.
Effects of stock market crash of 1929
Most banks closed leading to massive loss of employment. As a result, the economic growth dropped rapidly. Moreover, most borrowers were affected psychologically as a result of shock while others succumbed to death (Ojala and Turo, p.16) Loss of money by borrowers led to a decrease in the money supply and thus slowed the growth of the economy. Other depositors who heard of the looming close-down of banks rushed to withdraw their money to avoid incurring losses. This led to closedown of banks.
Actions taken to prevent further crisis
The US senate established Pecora commission to evaluate the factors that caused the crash. In 1933, the senate enacted the Steagall Act that detached investment banks from commercial banks. Moreover, President Roosevelt ordered all banks to close in order to evaluate them and ensure that only the financially stable banks were allowed to re-open under new strategies. Further, the federal government established Federal Deposit Insurance corporations that safeguarded the depositors’ money in case the banks became insolvent.
Current changes in the Stock market over the past 100 years
The stock exchange market has rapidly revolutionized in order to mitigate the financial crisis and caution itself against recession. For instance, all stockholders are required to open central depository accounts in the Central Depository System (CDS) that synchronizes the stockholders’ personal information with his current financial status. Additionally, most governments have allowed commercial banks to obtain broker’s certificate and serve as brokers on behalf of the investors.
Dorodnykh, Ekaterina. Stock Market Integration: An International Perspective. New York: Palgrave Macmillan, 2013. Print.
Ojala, Jari, and Turo Uskali. "Any Weak Signals? The New York Times and the Stock Market Crashes of 1929, 1987 and 2000." 3.2 (2006): Print.