T. Rowe Price

Chapter FourTHE GREAT BULL MARKET AND THE CRASH, 1927–1929

For almost a decade, from 1915 through the end of 1924, the Dow Jones Industrial Average had moved very little. The deep bear market of 1921 had traumatized investors, and there was little interest in buying stocks. However, 1925 was a good year, with a rise of about 20 percent in the Dow Jones, but 1926 was flat. The Dow made up for this in 1927, when from the beginning of the year it began to march steadily upward with a firm step and little retreat. This momentum was supported by a good economy, with the Federal Reserve index of industrial production rising more than 50 percent. Corporate earnings were rising even faster, as were stock dividends. Interest rates were low. By late 1927, business was becoming very exciting at Mackubin, Goodrich.

The late 1920s were also a fun time for many in the United States, with the Jazz Age, flappers, and – due to Prohibition – speakeasies. The scientific discoveries and inventions of the late nineteenth century were yielding many important new products. The first mass‐produced automobiles were appearing on the road and airline transportation over short distances was becoming commercially feasible. The miracle of radio was coming to the average home and there was talk that even moving pictures might soon be transmitted over the air. Nothing seemed impossible in this new era of innovation.

Britain went back on the gold standard in 1925. As Chancellor of the Exchequer, and with no ...