The Resurgent Fifties

In 1952, the New York Stock Exchange conducted a survey to see how many Americans participated in the stock market. The findings were sobering: just 6.5 million individuals owned shares in publicly traded companies — a mere 6 percent of the adult population.

By contrast, in the century’s first three decades, the number of individual shareholders had risen from some 1 million to 10 million, all in a less populous America.

The Great Crash of 1929 still cast a long shadow in the early 1950s. The Dow Jones Industrial Average remained below its pre-Crash high. Savings bonds were the investment of choice, while stocks retained a dicey reputation. Nearly 70 percent of families with annual incomes over $3,000 said they were opposed to buying stocks.

The 1950s, however, would be a decade in which Americans rediscovered the stock market. This rediscovery was both a cause and an effect of the decade’s rising prosperity, as companies tapped into an expanding source of capital while shareholders enjoyed annual returns averaging in the double digits.

As such, the fifties provide lessons for our own time, both hopeful and cautionary. On the hopeful side, the decade demonstrated the profound resilience of the American stock market, in bouncing back from the Great Depression and World War II. On the cautionary side, it took over a quarter century for the market to regain its 1929 peak, a daunting span for even the most patient of investors.

While the fifties brought a return to optimism, it was a cautious optimism. The mid-century market’s boosters sought to differentiate the institution from its pre-Crash days. Thus, they accepted tighter rules on margins and disclosure, and emphasized long-term investment over rumor-driven speculation. This conservative mood on Wall Street helped build confidence throughout the country that the equity market was sound.

Policymakers and financial executives today face the challenge of trying to restore public confidence in a financial sector recently swept over by turmoil. The 1950s experience suggests that this can be done. But it also indicates that public- and private-sector decision-makers in finance must show they have learned substantive lessons about what went wrong. That last condition is something that remains in doubt today.

Climbing Back

The Dow, which had spent most of the late 1940s below the 200 line, opened the new decade at 200.13. The index climbed steadily in early 1950 as the economy rebounded from the previous year’s recession. By late May, the Dow had reached 227, its highest level since September 1930.

In early June, Time magazine touted the market upswing as “the biggest, heftiest bull that Wall Street had seen since the wild and rampaging days of 1929,” and also noted that the new bull had “an entirely different pedigree from the 1929 breed” since it was not characterized by “shoeshine boys, elevator operators and other shoestring speculators trying to make a killing with 90 [percent] of their stock bought on credit.”

Later that month, the Korean War broke out, dragging the Dow back below 200 by mid-July. But confidence in the ongoing economic boom soon reasserted itself, and defense and transportation stocks got a boost as troops and supplies shipped to Korea. The market reacted with relative calm to China’s entry into the war later in the year, and the Dow closed 1950 at 235.42.

The economy continued expanding in 1951, posting a 7.7 percent GDP gain compared to 8.7 percent the previous year. The Dow passed 270 in September, and Time again assured its readers that this bull was “different from its predecessors, largely because there has been none of the speculative frenzy that usually accompanies bull-market tops.”

The market continued rising at a stately pace. The Dow closed 1952 at 291.90. The index was back below 270 in mid-1953 as the economy slipped into a mild recession and the Korean War wound down. The index edged back up to 280.90 at end-1953, and was poised for further gains as growth resumed the following year.

Selling the Market

Despite the market upturn, concerns persisted on Wall Street and among opinion leaders that the public was not along for the ride. In July 1953, Time worried that “there is a shortage of risk capital that threatens to slow the pace of industrial progress,” and attributed this shortfall to “the melancholy fact [that] only a relative handful of Americans are willing to ‘take a chance’ on the nation’s economic might by buying shares in U.S. industry.”

But efforts to rectify that precise problem were already gaining momentum. A key figure in the push to expand public participation in the market was G. Keith Funston, who took the $100,000-a-year job of New York Stock Exchange president in 1951 at age 40. A tall, outgoing former president of Connecticut’s Trinity College, Funston had a background that ranged from selling radiators to administering wartime production. Now he took on the mission of being, as he put it, “a salesman of shares in America.”

Funston launched a marketing and education campaign under the slogan “Own Your Share of American Business.” This involved doubling the exchange’s advertising budget, setting up displays around the country, putting out a monthly magazine and producing films about the stock market for schoolchildren and investment clubs.