As businesses evolved, people invented new ways to make and manage investments. In Europe, businessmen started to divide the ownership of companies among a number of shareholders. People could buy these shares of a company, sometimes referred to as “stocks,” and then benefit from increases in a company’s worth. Markets developed where people could buy or sell these shares. Today, we call these places of exchange “stock markets.” This model traveled with Europeans to the Americas, and it continues to provide the backbone of the American financial sector.
The Beginnings Of The New York Stock Exchange
New York City in general, and Wall Street in particular, has always been the center of the U.S. stock market. The first organized market took shape in 1792, just 16 years after the formation of the United States. A group of stock brokers came together and signed an accord, now known as the Buttonwood Agreement, by which they would regulate their activities. In the subsequent decades, they made further adjustments to their regulations. The use of commissions and committees to regulate the market would go on to mark the rest of the stock market’s history.
Stock Trading Increases Over The Course Of The 19th Century
The early market focused on trading government bonds and other safe investment. After the Civil War, however, trading in riskier stocks became increasingly common. New technologies also made it easier for people around the country to make investments in New York. With the advent of the telegram, a wealthy investor in San Francisco could contact a broker in New York and make a major investment in a single day. This ease of communication gave the stock market the dynamism that has only become more pronounced in recent years.
The Crash Of 1929
At the end of the “Roaring Twenties,” the American stock market essentially collapsed. Rapidly falling prices spurred investors to sell, and the entire system came crashing down. This market crash had wide-reaching effects, with the country entering years of economic despondency that we now know as the Great Depression. As the country slowly recovered, new regulations were put in place to try to prevent another crash in the future.
The Recession Of 2008
For almost eight whole decades, the U.S. stock market survived without any major disruptions. While occasional dips frustrated investors, the general trajectory was surprisingly stable. That all changed in 2008, when the bursting of a bubble in the housing market sent the American economy into a serious recession. Stock prices plunged rapidly as many American companies went bankrupt. Government intervention eventually arrested the sudden slide, but the market took years to recover all the same.
Increased Participation In The Digital Age
For most of the stock market’s history, only a small percentage of the American public could claim to be actively involved. Many workers may have had money tied up in mutual funds managed by professional brokers, but only a small subset of major investors engaged directly with the buying and selling of stocks. Now, with online trading platforms giving regular people more access to the market, these age-old dynamics are rapidly changing. More individual investors are getting involved, many of whom lack the experience of traditional investors. This has made the entire market more volatile and less predictable.
With modern technology and individual investors shaking up the trading landscape, it’s difficult to predict what the future holds for the stock market. The only thing we can reliably bet on is that major changes are upon us. Ten years from now, we’ll have a much better idea of how the market will operate in the digital age.