Introduction
Investing in stock markets has been an intimidating task. Looking at all the ratios of a company that we plan to invest and perhaps looking at the indexes prices to predict the value of the market is a complex and time consuming task. The presence of the hitherto complexities do not stop us from thinking and devising ways on getting great returns by investing in stocks. It is impossible to predict the unpredictability of the future but looking at the past might provide us with some insights about the history and historical return of stocks. Let’s start from the 19th century and move towards 2024.
Focus Points
1. Historical Development of Major Stock Exchanges: The New York Stock Exchange (NYSE) evolved from the Buttonwood Agreement of 1792 to a formal institution in 1817, and the London Stock Exchange (LSE) originated over 300 years ago, progressing from informal gatherings to a structured entity in 1802.
2. Introduction of Key Market Indicators: The NYSE introduced the stock ticker in 1867 and the Dow Jones Industrial Average (DJIA) in 1896, while the LSE launched the FT 30 in 1935 and the FTSE 100 in 1984.
3. Stock Market Performance (1901-1929): The S&P 500 exhibited minimal volatility from 1901-1920, with a 64.8% increase, but saw significant growth of 394.884% during 1921-1929, indicating increased investor confidence and popularity of stocks.
4. Market Returns in the 20th Century: Over the 20th century, the S&P 500 grew from 8.50 to 1465.16, and the DJIA rose from 78.3 to 10,738.87, reflecting a steady growth trend. The FTSE 100, starting in 1984, also showed substantial growth over a shorter period.
5. Market Returns in the 21st Century (2000-2024): The S&P 500 increased by 230.9% and the DJIA by 231.6% from 2000 to 2023, whereas the FTSE 100’s growth was modest at just over 13%, indicating stronger performance of US indexes compared to the UK index.
New York Stock Exchange: A Historical View
The roots of NYSE come from the Buttenwood agreement of May 17, 1792 that eventually converted into NYSE. On March 8, 1817, a constitution was adopted that laid the foundation for NYSE board as the governing authority. NYSE board decided to rent a place to organize itself and they rented a room at 40 Wall Street, where the early brokers of the NYSE gathered twice a day to conduct the bidding sessions. The early bidding included a list of 30 stocks and bonds and the bidding was conducted by reading out the names of the companies loud. After the civil war was ended the NYSE had 300 companies for their business day.
In 1865, the NYSE got its first permanent place to conduct their business at Board Street (present site).The stock ticker was introduced in 1867 while the famous bell sound (Chinese gong) for starting and stopping session became part of the stock exchange machine in 1870. In 1896 the Dow Jones Industrial Average (DJIA) with 12 components was created. Fast forward to 1923, when Standard & Poor (S&P) was founded and started tracking 90 companies in 1926. The brief history illustrates the evolution of the NYSE and the foundation of world’s most famous indexes.
London Stock Exchange: A Historical View
With a history of over 300 years, the London stock exchange is one of the oldest and the biggest stock exchange in Europe (Before Brexit). The story starts with John Castaing, when he started issuing a list of stocks and commodity prices titled as , ‘‘The Course of the Exchange and other things’’. After the expulsion of the stock dealers from the Royal Exchange of Rowdiness, they started operating in the streets and coffee shops. Their favourite place was Jonathan’s Coffee House located in change alley.
In the year 1761, around 150 brokers managed to make a group of buying and selling stocks. They formed a group at Jonathan’s Coffee House, ‘’The First Club’’ of brokers. The year 1773 brought them to the idea of erecting their own building in Sweeting’s alley, that was named as, ‘’New Jonathan’s’’. They later changed the name from ‘’ New Jonathan’s’’ to ‘’ The Stock Exchange’’. In 1802 the exchange moved to the new building in, ‘’Capel Court’’.
Fast forward to 1935, when FT 30 was the only major index of the LSE with equal weights to all 30 companies. On January 3, 1984, a major index consisting of 100 companies was formed and the initial name was, ‘’ Stock Exchange 100’’. It wasn’t too late when Financial Times (FT) carved it’s way in and SE 100 changed to FTSE 100 (Footsie 100).
Stocks: How they gained Traction
Over the period of 19 years (1901-1920), it is evident from the performance of S&P 500 that it did not show much volatility. From 1901-1920 the level of S&P 500
| S&P 500 (LOW) | S&P 500 (HIGH) |
| 6.25 (In 1907) | 10.30 (In 1909) |
The levels stayed less volatile in the time period with no notable peaks or dips. The levels stayed between 5 and 11 in the hitherto timeframe. If we look at the period starting from 1920 – 1929 in the table below
| S&P 500 (LOW) | S&P 500 (HIGH) |
| 6.45 (In 1921) | 31.92 (In 1929) |
We can see a big jump in the levels in this timeframe. The increase is a whopping 394.884%.
We can conclude from the levels of the market between 1901-1920 that the increase was only 64.8% over the time period of 19 years while over the time period of 9 years between 1921-1929, it was a bull market and people were feeling confident towards the stock investing idea and the increase of over 300% clearly indicates attachment towards businesses trading. There are reasons for any bull market but mostly due to higher trading volume and positive human sentiments the bull era start. The comparison clearly shows that stocks became popular and also became a common affair in peoples’ life. Thus it can be the period of stock familiarity and popularity.
Stock Market Returns: 1900-2000
The market returns can be determined around the world by looking at the major indexes of respective countries. The indexes like DJIA, S&P 500 and FTSE 100 are a good gauge to provide the investors with a greater precision about the market levels in USA and UK as compared to a single company.
Over the course of the previous century, if we track the market levels starting from 1901 (The Intelligent Investor), we can see that the S&P 500 was at level 8.50. If we consider the complete century then the level of S&P 500 in 2000 was at level 1465,16 (Google Finance). The average of the century (1901-2000) would be 736.83. The value added to S&P 500 every 10-year period is 73.638 and the value added to S&P 500 every year is 7.3683.
The DJIA index started at the level of 78.3 in 1901 and by the end of the century it reached at the level of 10,738.87 in the year 2000 (Google Finance). The average calculated for the century is 5408.59. The value added to DJIA index every 10-year period is 540.9 and the 1-year value change for DJIA would be 54.1.
The FTSE 100 was established in 1984 and the starting level was 1039.20 in the June of 1984. It hit the level of 6658.20 in the January of 2000. The time period is shorter, so it is not possible to calculate the 100- year average to better understand the return. However, the average over the course of 16-years is 3848.7. So, the 1-year value addition to the FTSE 100 would be 240.5. If you would like to read more about Stock Investment, CHECK THIS OUT!
Stock Market Returns: 2000-2024
Now let’s consider the present century at look at the levels of different indexes to have a precise view about the market performances of S&P 500, DJIA and FTSE 100.
The time period of 23 years starting from 2000 until 2023, shows a different aspect market dynamics. One could argue that the markets are more efficient then ever and we have more innovation in financial instruments, still the vicissitudes of the markets can’t leave the investors. The level of S&P 500 from the year 2000 to 2024 has seen a very sharp rise. From 1441.5 on January 7, 2000 to 4769.9 on December 29, 2023 has been a great peak and perhaps the investors should have positive sentiments. Anyone who would have stayed in the S&P 500 index would have made a profit of around 230.9% over the period of 23 years.
On the other hand the DJIA index provided the patient investors with the overall return of 231.6% over the course of 23 years. The DJIA index performed just 0.7% better than S&P 500.
Looking at the data of FTSE 100 over the past 23-year period, we can see the patient investors also reaping some profits. Starting from the January 14, 2000 the level of FTSE 100 was 6658.20. Over the period of 23 years the FTSE 100 has gained a little over 13% and on December 15, 2023 it was standing at the level of 7576.26. The UK index performed worse when compared to the US indexes. Want to know The Effects of Inflation on Stock Market Asset Classes! Follow THIS LINK!
Conclusion
In conclusion, analysing the historical performance of major stock indexes such as the S&P 500, DJIA, and FTSE 100 reveals substantial insights into the evolution and attractiveness of stock markets over time. Historical data shows varying levels of market volatility and returns, with significant bullish periods contributing to increased investor confidence and market participation.
Between 1901 and 1920, the S&P 500 experienced relatively stable levels, whereas the period from 1921 to 1929 saw a remarkable rise, reflecting heightened market activity and optimistic investor sentiment. While the entire 20th century exhibited impressive gains, particularly for the S&P 500 and DJIA, the performance from 2000 to 2024 underscores the resilience and continued appeal of stock investments. The US indexes, S&P 500 and DJIA, demonstrated robust returns, while the FTSE 100 exhibited more modest growth, highlighting regional disparities.
Overall, the historical journey of stock markets affirms their potential for lucrative returns despite inherent risks and uncertainties. By learning from past trends and maintaining a long-term perspective, investors can navigate the complexities of stock markets more effectively, aiming for sustainable financial growth.
