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When people talk about the market going up or down, showing a strong performance or a weak one, or turning bull or bear, they are referring to the market as seen through the lens of indexes.
Indexes work like a summary of the market by tracking the top stocks within a market. As one of the biggest factors in the performance of stocks is the health of the market, it is hard to believe that indexes have been around for less than half the history of stock exchanges. In this article we will look at the history of these investment vehicles.
Before the Dow
The stock market's reputation has seen highs and lows throughout its history. Its lowest point is best shown in the years following the crash in 1929 because it destroyed the value of so many people's investments.
The first 120 years of the New York Stock Exchange has to rank as the second worst low for the Dow. The mistrust of the market during this time was not as intense, but it was much more sustained. The main reason behind this low was that people involved in the market were speculating rather than investing. This wasn't entirely their fault as regulations were quite loose and whatever information you could get wasn't guaranteed to be accurate or even truthful. This, coupled with the vulture-like dealers and brokers who circled around Wall Street waiting for investors they could exploit, made the markets more volatile. There were many honest brokers, companies and dealers, but there was nothing to stem the tide of fraud flowing from the less scrupulous ones. (To read more about the NYSE, check out What is history behind the opening and closing bells on the NYSE?)
Less recognized, but equally important, was the fact that people didn't understand the market or its fractions and points. The idea of a market was still one of stalls where you could browse farmers' produce and buy your groceries. The idea of buying the performance of a company was difficult for seventeenth and early-eighteenth century Americans to grasp.
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