Stock Market History: Key Events that Shaped the Driving Force of the Global Economy

The stock market has a massive impact on every one of us: When the largest stock markets are doing well, the global economy is stable; when a big stock market crashes, we can expect our lives to crash with it. But it hasn’t always been that way - commodity markets weren’t always a part of this world. So when did they come in?

In this article, we will discuss stock market history, the major stock market crashes, and some of the critical events that have shaped the capital markets over the years. We will also explore how it works and some of its benefits for businesses and investors. So, if you're interested in learning more about this fascinating topic, keep reading!

How Did It All Start?

Most people believe the first stock market appeared in 1792 with the establishment of the New York Stock Exchange (NYSE). However, this is not the case. 

The first stock exchange was formed in Amsterdam in 1602, when shares in the Dutch East India Company were traded for the first time. Back then, the Dutch East India Company was the largest company in the world, and it had a monopoly on trade with Asia.

On the other hand, 1790 is when the history of the stock market in the United States first began, with the establishment of the Philadelphia Stock Exchange. However, on May 17, twenty-four New York City stockbrokers signed the Buttonwood Agreement, which allowed them to trade stocks outside of their own businesses and with each other. As a result, the New York Stock Exchange was born, representing the true beginning of stock trading in America.

The goal of the Buttonwood Agreement was to increase stock liquidity and make them more accessible to investors. However, in the early years, the New York Stock Exchange was only open to exchange members. In 1817 it finally became a formal organization, allowing non-members to trade stocks as well.

Of course, the whole stock exchange business started with companies' need to raise capital. In the past, they could only issue bonds to raise money. However, this was not always ideal, as it burdened the businesses with a lot of debt. Issuing stocks was a better solution, as it allowed businesses to raise money without taking on any debt, since they didn’t have to pay out bonds.

The Global Stock Market History

Since its humble beginnings in Amsterdam, the global stock exchange has had a few eventful centuries. Today, there are major stock exchanges all over the world, including London, Frankfurt, Tokyo, and Hong Kong. At the time of writing, the global stock market was worth an estimated $108 trillion.

US Stock Market History

As mentioned, the US stock market has a long and storied history, dating back to the 18th century. The first known US stock transaction took place in 1792 on Wall Street in New York City. Soon after that, the first American stock exchange - the New York Stock Exchange - was established. Since then, stock markets have undergone numerous ups and downs.

The 20th and 21st centuries saw tremendous economic growth, as new technology revolutionized almost every industry, which spurred global trade spurred economic activity. However, as the stock market history timeline shows, there have also been some significant challenges, most notably during the Great Depression of the 1930s and the Great Recession of the 2000s.

In recent years, stock markets in the US have once again reached new heights and remained largely disconnected from the economic crises brought on by the COVID-19 pandemic, fuel shortages, and political turmoil.

The Most Important Stock Exchanges in the World

There are dozens of stock exchanges worldwide, but some are better-known than others. Here is a brief overview of some of the most popular stock markets globally:

The New York Stock Exchange (NYSE)

The New York Stock Exchange is the largest stock exchange in the world by market capitalization. It is located on Wall Street in New York City and is open Monday through Friday from 9:30 a.m. to 4:00 p.m. Eastern Time.

The Nasdaq Stock Market (NASDAQ)

The Nasdaq isn’t just a stock market index - it’s also the second-biggest American stock exchange and the second-largest in the world. The NASDAQ composite index consists of high-tech companies. It’s also located in New York City and offers listings from over 3,000 companies, including Apple, Amazon, and Facebook.

The Philadelphia Stock Exchange (PHLX)

As mentioned, this is the oldest stock exchange in the United States, dating back to 1790. It is located in Philadelphia, Pennsylvania, and offers listings for various companies, including many in the healthcare and biotechnology industries. In 2008, the Nasdaq OMX Group acquired PHLX, changing its name to NASDAQ OMX PHLX, which later became just Nasdaq PHLX, and its focus is now primarily on options trading.

The London Stock Exchange (LSE)

The LSE is the largest stock exchange in Europe by market capitalization. It is located in London, England, and trades a wide range of securities, including stocks, bonds, and derivatives. The LSE also plays an integral part in stock market history, as it is one of the oldest stock exchanges in the world, dating back to 1801. The LSE is open Monday through Friday from 8:00 a.m. to 4:30 p.m. Greenwich Mean Time.

The Tokyo Stock Exchange (TSE)

The largest stock exchange in Asia and the fourth largest in the world, the TSE is located in Tokyo, Japan, and has more than 3,000 listed companies. The TSE was established in 1878 and is now part of the Japan Exchange Group. The TSE offers trading shares from some of the most well-known Japanese companies, such as Toyota, Sony, and Honda.

The Hong Kong Stock Exchange (HKEX)

This is the largest stock exchange in China by market capitalization: At the end of August 2022, HKEX’s market cap was $35.6 trillion. The exchange is located in Hong Kong, has more than 2,500 listed companies, and allows electronic trading in a wide range of securities. Furthermore, this exchange also offers Chinese companies a listing venue outside of mainland China.

These are just a few of the most popular stock exchanges in the world. Each one plays a vital part in the balance of the financial markets.

Historical Highs and Lows

The state of the stock markets can be a measure of the global economy's health, and it has been on a roller coaster ride over the previous century, as well as this one. There have been highs and lows, booms and busts, and each has affected people’s lives differently.

The stock market crash of 1929 was probably the biggest stock market crash in history, and it ushered in the Great Depression. The Dow Jones Industrial Average, one of the most important stock indexes and a measure of the US stock market’s performance, fell from its high of 381.2 points in September to just 199 points in November, over days now known as Black Thursday and Black Tuesday. This was a devastating blow to the American economy, and it took years for the world to recover.

The next low came in 1987, when the Dow Jones Industrial Average fell by 22.6%, or 508 points. This day is known as Black Monday, and it was caused by several factors, including high oil prices and concerns about the stock market’s valuation.

There have also been highs, of course, and perhaps the most recent one is the bull market that began in 2009, after the Great Recession. This was spurred by low interest rates and quantitative easing from the Federal Reserve, and it helped to lift the Dow Jones Industrial Average to new heights. It reached its all-time high of 26,616 points in January 2018.

As you can see, there have been multiple stock market highs and lows in history, which have had a profound impact on the American economy. Stock markets are volatile, and their changes affect the world’s economy. It is worth paying attention to their ups and downs because they can significantly impact our lives.

Other Factors That Can Affect the Stock Market

Stock exchanges are complex systems influenced by multiple factors. While most people aren’t aware of the role that economic indicators play in the stock market, stock market performance, as history has shown, can also be affected by political factors, disastrous events, and even Tweets.

When a country is experiencing political turmoil, investors may become worried about the stability of its government and economy, which can lead to a sell-off in the stock markets, especially when it comes to government securities.

Another factor that can affect the markets is natural disasters. For example, if a hurricane or earthquake hits a region, it can disrupt supply chains and lead to a decline in profits for companies relying on that region. As a result, investors may sell off their stocks to avoid losses.

Finally, consumer confidence can influence the stock market. Some of the biggest stock market drops in history have been preceded by a period of low consumer confidence. When people are worried about the future, they are less likely to invest in the stock market. Instead, they may choose to save their money or invest it in other assets.

When consumers feel confident about the economy, they are more likely to spend money, which leads to higher company profits and stock prices.

The Benefits of Investing in the Stock Market

Stocks are essential in most trading portfolios, and represent a great way to diversify yours. Investing in multiple stocks can spread your risk, and avoid putting all your eggs in one basket.

Additionally, if you look at the history of the US stock market, you’ll see that it has outperformed other investments, such as bonds and real estate, over the long term. If you're patient and invest for the long haul, you will likely see bigger returns from stocks than from other investments. It’s also less risky than investing in futures, mutual funds, etc.

Finally, investing in stocks can be a great way to build your wealth over time. While it's true that there will be ups and downs along the way, owning shares in quality companies can help you grow your wealth steadily over time.

Final Thoughts

The stock market is a vital part of the global economy and plays a significant role in our lives. These major events in stock market history have had a profound impact on the economy, and it's essential to understand how the stock markets work to make informed investment decisions. 

Additionally, it's worth paying attention to the stock market's highs and lows and the factors that brought them about. By doing so, you can be better prepared to weather these events and make wise investment choices.