Wall Street History

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Wall Street History

11/26/2010

1929-1939

As a follow-up to my piece last time on the Smoot-Hawley Tariff Act of 1930, I thought I’d provide a little more market background behind the numbers during this time, specifically 1929-1939, the latter when World War II officially began with the German invasion of Poland.

First, the bear market of 1929-32, when the Dow Jones peaked on 9/3/29 at 381.17 and then proceeded to slide to the all-time low of 41.22 on 7/8/32, a decline of 89%.

Despite the carnage over this period, you had some spectacular rallies after the Crash, 10/29/29, through the low of 41.22.

10/6/31…+14.9%...in one day
10/30/29…+12.3%
2/11/32…+9.5%
11/14/29…+9.4%
12/18/31…+9.4%
2/13/32…+9.2%
5/6/32…+9.1%

And there were five multi-day rallies in excess of 20% during this same period, +23% to +48%, all as the Dow Jones was working its way down 89% from the high.

--The day after the Crash, 10/30/29, President Hoover uttered his infamous commentary, “The fundamental business of the country is on a sound and prosperous basis.” [You see from the above the market rallied 12%, which would be like 1300 Dow points today.]

--6/17/30, Hoover signed the Smoot-Hawley tariff act into law, which slapped duties on 890 articles. Within two years, 25 nations retaliated by raising duties on U.S. goods. The Dow declined 4.5% that day.

--The Bank of the United States closed on 12/11/30. There was little market reaction.

--6/20/31, Hoover proposed a moratorium on war debts and reparations from World War I, designed to break the enveloping panic in international markets. The market rose the next trading day from DJ 138 to 145.

--The Bank panic spread in September and October of 1931, with 305 banks shutting down in September and another 522 in October. The Dow swooned 31% in September alone (140 to 96), but it rose 10% in October (96 to 105).

--In the beginning of 1932, President Hoover reduced his own salary by 20% and initiated various public works programs in an attempt to alleviate staggering unemployment, as up to 13 million were now without jobs. At the same time, the markets were dealing with deflation. National wages, for example, were 60% less than in 1929. By mid-1932, U.S. industry was operating at less than half its maximum from ’29.

1930 -6.0%
1931 -9.5%
1932 -10.3%

--July 2, 1932, FDR was nominated and called for a “new deal for the American people” in his acceptance speech. The market bottomed six days later but it wasn’t a straight line back up, though following the bottom on 7/8/32, the stock market staged some truly historic rallies over the next few years. For example:

7/8/32-9/7/32…+94%
2/27/33-7/18/33…+117%
7/26/34-3/10/37…+127%

Looks pretty good, right? Only if you ignore the period 3/10/37-4/28/42…-52% [194 to 92.92]

Here are some key dates for FDR’s first two terms until war breaks out.

--11/8/32: FDR elected, annihilating Hoover 472-59 in the Electoral vote. The next day the Dow Jones dropped 4.5%, then recovered.

--3/4/33: FDR inaugurated. [It took the 20th Amendment to change this date to its current January 20.] The market was closed on 3/4 and in a special session of Congress, a week-long bank holiday was declared for the period 3/5-3/14.

--By the end of March 1933, more than 75% of the nation’s banks had reopened. Confidence was returning, which helped lead to one of the above-noted rallies in the Dow.

--Between March 31, 1933 and November 8, 1933, Congress approved all manner of acts and agencies, including the Civilian Conservation Corps, TVA, 1933 Securities Act, National Industrial Recovery Act, Public Works Administration, Banking Act of 1933 (which created the FDIC), and the Civil Works Administration.

--12/5/33: Congress repealed Prohibition (the 21st Amendment). But there was no impact on the Dow! Goodness gracious.

--1934: Record cold in February, then searing heat in the summer helped lead to the incredible drought and disastrous dust bowl conditions. But the banking sector continued to improve and employment was rising.

--6/6/34: The Securities Exchange Act created the SEC.

--6/12/34: Trade Agreements Act allowed FDR to cut tariffs 50% to countries granting the U.S. most-favored-nation status. This helped make up for the damage created by Smoot-Hawley.

--7/16/34: The first general strike in U.S. history as 12,000 members of the International Longshoremen’s Association struck. No impact on the Dow Jones was seen.

--5/27/35: The Supreme Court ruled that the National Industrial Recovery Act was unconstitutional. The Dow fell 2.6% on the news.

--12/12/37: A U.S. gunboat was sunk in Chinese waters by the Japanese (two killed). The Japanese, who were at war with China, apologized on 12/14. The Dow fell 3.2% on the news, but then recovered.

--1938: Hitler begins to move, taking Austria in March and then negotiating the annexation of Czech Sudetenland with the signing of the Munich agreement. Wall Street, clueless as usual in these instances, inches up.

--8/24/39: Russia and Germany sign non-aggression pact. Dow is up 3.8% two days later.

--9/1/39: Germany blitzes Poland. The Dow closes at 135.25 that day and 138.09 on 9/2. Then you have Sunday and Labor Day (the market was open on Saturdays back then), so on 9/5 you’d expect rational thinking to have entered the minds of the trading public in the U.S. Wrong. The Dow rallied to 148.12 for a pickup of 10% since the invasion. Idiots. It wasn’t until May 1940 that the Dow began to plummet, as the Nazis rolled through the Netherlands and Belgium and were on the verge of taking Paris.

I’ve covered the rest of the war years previously so we’ll stop here.

Birinyi Associates
“The Dow Jones Averages: 1885-1995,” edited by Phyllis S. Pierce
“The Encyclopedia of American Facts and Dates,” edited by Gorton Carruth
Ibbotson Associates Yearbook

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