A Year Full of Pops That Couldn't Save the Dow
On this day in economic and business history...
More record-pacing market gains were made in 1932 than in any other year in Dow Jones Industrial Average history. That year, seven trading days clocked in with gains of more than 7% that year. May 6, 1932 was one such day, as the Dow rose 9.1% from a minuscule starting position (the total increase was only 4.91 points) in response to several pieces of news that can best be described as "not completely awful." The New York Times reported of the day's pop:
President Hoover's address to Congress on tax legislation, the adoption of a compromise revenue measure by the Senate Finance Committee and the announcement of a proposed reduction in wages and salaries by the United States Steel Corporation were among the developments which contributed, in varying degrees, to yesterday's brisk rally on the Stock Exchange. At least these incidents seemed to Wall Street to account mainly for the strength.
US Steel's wage cut, which was only the latest in a series of such cuts and had previously been paired with a dividend suspension, seems a strange thing to cheer. However, it's worth keeping in mind that the Dow has only witnessed one period of extended monetary deflation in its history, and this deflation peaked right as the Dow bottomed out in 1932. US Steel's shares closed at $30.75 for the day -- a gain of more than 10% but still nearly 90% lower than its closing value on the day of the Dow's 1929 all-time high. The Dow was similarly moribund: From that day in 1929 (when it closed at 381.17 points) to May 6, 1932 (when it closed at 59.01), 85% of the index's value had evaporated.
Reaction to the other good news, such as it was, was more along the lines of "thank goodness this wasn't worse!" The market gave Hoover a rare show of support, primarily because he got angry at Congress (instead of Wall Street) over the state of the economy and that legislative body's seeming refusal to do anything about it. The Finance Committee "compromise," which would never be seriously considered today, proposed a tax of 80% on the bonuses paid to executives of large corporations. This, at least, still allowed for the option of simply drawing a higher salary.
In other news that day, Standard Oil of New Jersey (which you now know as ExxonMobil ) proved that the 1911 antitrust breakup had been no barrier to its growth. The oil giant, which reported assets of more than $1.7 billion at the start of 1931, announced its intent to absorb the foreign assets of Pan-American Petroleum on May 6, 1932. Pan American's 29 tanker ships would be among the assets added to Standard Oil's holdings, which already included 147 tankers at the time of the deal.
The May 6 pop proved short-lived, as others would throughout 1932. By the time the Dow bottomed out in July, it had lost a further 30% from its May 6 close. It's almost mind-boggling to consider how many times "buy low" only served to lay investors low in the early years of the Great Depression. Despite its seven huge days, 1932 turned into one of the Dow's worst years: From the beginning to the end of the year, the index shed 23% of its value.
Although a rebound did start in July, it didn't get very far: Monstrous summertime growth reversed itself once Franklin D. Roosevelt's candidacy became official as market participants waited for the outcome of one of the most eventful presidential campaigns in modern history. By the time FDR came into office, the Dow had actually fallen below its May 6 closing value. It was only once the Roosevelt administration began its "bold, persistent experimentation," beginning with a post-inaugural nationwide banking holiday, that the markets at last began to recover.
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