Index Roared to Fame in 1920s
Try talking about the stock market without mentioning the Dow Jones Industrial Average: It is a little like talking about the weather without mentioning the temperature.

It wasn’t always that way. For the first 25 years or so of its existence, the industrial average was mostly absent from headlines in the financial press.

In the late 19th century and early 20th century, investors focused mainly on the action of individual stock issues rather than the market as a whole. When they did look at market averages, they were more likely to look at railroad stocks, the blue chips of the day, than at industrial stocks, which were considered speculations.

It was in the Roaring ’20s that many investors first became intimately acquainted with the industrial average. That was when masses of average citizens began buying stocks by the bundle. Their enthusiasm carried the industrial average from around 100 in 1924 to nearly 400 by mid-1929.

More than 20 years after it first hit the 100 mark in early 1906, the industrial average broke 200 in 1927. For two decades, the compound average annual gain in the index was an unexciting 3.2%. World War I and a fierce flu epidemic were among the factors that held down stocks in the early part of the century.

But in the ’20s, the industrial average set a record in each of six consecutive years from 1924 through 1929. That was the longest such string on record until the current bull market, and by some measures the 1920s bull market was the strongest ever.

Give part of the credit to President Calvin Coolidge, known as Silent Cal. When Mr. Coolidge said, ”The business of America is business,” he meant it. His hands-off, or laissez faire, policies contributed to the economic and stock-market booms of the time, and certainly had at least an indirect effect on the popularity of the industrial average.
Then, the crash of 1929 thrust the Dow industrials to true prominence. Investors were hungry for a way to gauge the overall damage, so the Dow industrials made front-page headlines.

On Oct. 28, 1929, The Wall Street Journal’s main headline announced that the ”Industrials” were ”off 38.33.” The next day, they fell another 30.57 points. (Those two plunges, of 12.82% and 11.73% respectively, remain the second-highest and third-highest of all time in percentage terms, behind the record 22.61% crash on Black Monday, Oct. 19, 1987.) In six days, the industrial average lost more than 96 points, nearly 30% of its value.

Competition to the Dow industrials began to arrive in the mid-1920s. For example, the forerunner of Standard & Poor’s began compiling the performance of 200 stocks on a regular basis in 1926.

Today, there are several more sophisticated indexes. But the public has long since adopted the Dow Jones Industrial Average as its stock-market standard. If you ask the average investor what ”the market” did today, you can bet that he or she will answer with the performance of the Dow industrials.

A Prosperous ’28 Closes at 300

It took nearly 22 years for the Dow Jones Industrial Average to rise from 100 to 200. But it took barely over a year for the average to vault the next hundred points.

The industrial average hit precisely 300 on the last day of 1928. It had soared 48% that year, making 1928 one of the best in history. (The only better have been 1915 and 1933.)

”I call it the final fling upward,” says Richard Stillman, a former professor and author who has written a book on the DJIA. ”This was a great era of euphoria. Prosperity was an explosion: Automobiles were in mass production, radios were in mass production,” and telephone and aerospace industries were taking off.

Professor Stillman thinks that Herbert Hoover’s victory over New York Governor Al Smith in the 1928 presidential race also helped the Dow industrials surmount 300. ”The political climate continued to be highly favorable to business,” he says. Mr. Hoover favored ”rugged individualism,” and the less interference in business, the better.

A few weeks before the DJIA hit 300, the editors of The Wall Street Journal, who determine how the average is calculated, made major changes. They increased the number of stocks in the average to 30 from 20. Today, the average still contains 30 stocks, even with periodic replacements.

The 1928 shift paid homage to the growing power of the auto industry. Chrysler Corp. and Nash Motors were both added, as was Bethlehem Steel Corp., which provided metal for the cars, and Texas Corp., which later became Texaco Inc. Other additions were Postum, which made a then-popular beverage; Victor Talking Machines, a phonograph maker; and Radio Corp. of America.

After hitting 300, the Dow industrials would soar further in 1929, peaking at 381.17 in September. But in the crash of 1929 and the Depression, they would plummet. It would take a quarter century — until 1954 — before they would surmount the 300 barrier again.

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