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Quote of the Day

“It seems clear to me that the way out of the depression is to combat and overcome the deflationary forces. Therefore, I regard the action taken now [eliminating the gold standard] as being the best possible course under existing circumstances.”

-J.P Morgan, on this day in 1933 after it was announced the U.S. would abandon the gold standard.

His comments are thought to have led to a massive rally on Wall Street, with the Dow rising more than 9% on the day. More below:

April 19th – This Day in Stock Market History

April 19th, 1897 – The Dow Jones Industrial Average closes at its lowest level in history –  38.49.

The index was first published by Charles Dow beginning May 26th, 1896 at a level of 40.94. At this time, the index was made up of just 12 industrial stocks:

The American Cotton Oil CompanyDistilling & Cattle Feeding Co.North American Company
The American Sugar Refining CompanyGeneral Electric CompanyTennessee Coal, Iron and Railroad Company
American Tobacco CompanyThe Laclede Gas CompanyThe United States Leather Company (Preferred)
Chicago Gas Light and Coke CompanyNational Lead CompanyUnited States Rubber Company

Although the Dow was not yet popular enough to be quoted in the New York Times, the weakness in stocks was front page news on this day:

Source: New York Times

The declines was attributed to the Greco-Turkish War, however before the onset of the Greco-Turkish war, the stock market, led by railroads were already falling. The US Supreme court issued a verdict in an important case ruling that railroad price pools violated the Sherman Anti-Trust Act.

Declines were led by Northern Pacific, which had fallen 50% since February 1st.

The Dow’s close on this day would mark the lowest close in history. Stocks would rally aggressively from this day on, with the Dow rising to 55.82 by September – A rise of 45% in just 5 months.

Source: 101 years on Wall Street – An Investor’s Almanac

April 19th, 1933 – The U.S. officially goes off the gold standard.

New York Times Coverage of the U.S. going off the gold standard April 19th, 1933
New York Times Coverage of the U.S. going off the gold standard April 19th, 1933

Investors, perhaps influenced by J.P Morgan, heavily bid up stocks on the news – The Dow Jones Industrial Average would rise 9.03% on this day, and 5.8% the following day.

The move would also create violent moves in the currency and commodity markets. The U.S dollar was down 10-14% on the day against other gold-based currencies. The price of silver rose 12% from $28 7/8 cents per ounce to $32 3/8 cents per ounce.

With the restrictions of the gold standard eliminated, the government was able to adequately fight the lasting effects of the great depression.

1933 would be the best year in the Dow Jones Industrial Average’s history – with a rise of 53%, followed by a 38% rise in 1935 and a 25% rise in 1936.

Although the stock market would take decades to fully recover, eliminating the gold standard was one of the primary tools to bring the U.S (and the stock market) out of its depression:

chart from Macrotrends
chart from Macrotrends

Source: It Was a Very Good Year: Extraordinary Moments in Stock Market History

April 19th, 1968 – William Martin of The Federal Reserve is quoted as saying; “We are in the worst financial crisis since 1931”.

Martin_Federal_Reserve

Martin began his job at the Fed in 1951 and served during 5 different Presidents. He would serve until 1970.

Throughout the last half of his time as the chairman of the Federal Reserve, Martin and the Fed would be unsuccessful in dealing with the nation’s growing inflation.

great_inflation_period

Unfortunately, things would not get better any time soon.

The stock market struggle during the late 60’s through the early 80’s is often overshadowed by events like the Great Depression and even more recent events of 1008-2009. However, it was one of the worst long term periods of returns for the stock market in history. Adjusted for inflation the Dow would fall 68% from April 1968 to the 1982 lows!

The decade and a half from the late 60s to early 80s would be the worst 15 year performance of the Dow Jones Industrial Average in history (adjusted for inflation).

Dow_inflation_adjusted_1968-1980
Chart from Macrotrends



Best April 19th in Dow Jones Industrial Average History

1933 – Up 9.03%, 5.66 points.

Worst April 19th in Dow Jones Industrial Average History

1915 – Down 2.50%, 1.74 points

Read of the Day

The Great Inflation – By the Federal Reserve

The Great Inflation was the defining macroeconomic period of the second half of the twentieth century. Lasting from 1965 to 1982, it led economists to rethink the policies of the Fed and other central banks.

<– Go To Previous Day: April 18th, 1864 – Panic on the NYSE as gold prices collapse, mining shares fall 90%+

Go To Next Day: April 20th, 1720 – Iasaac Newton sells his shares of the South Sea Co for a 7,000 pound gain (he would lose 3x that later!) –>