Exploring the History of Equity Market: A Comprehensive Guide

The equity market has a rich and fascinating history that spans centuries. The first recorded stock exchange was the Amsterdam Stock Exchange, established in 1602.

Its humble beginnings were marked by trading in government securities and commodities. The Dutch East India Company's IPO in 1602 is often considered the first recorded IPO.

As trade and commerce grew, so did the need for organized exchanges. The London Stock Exchange was established in 1698, and it quickly became a hub for trade in securities.

The Industrial Revolution brought about significant changes, including the rise of joint-stock companies.

The early history of exchanges is a fascinating topic, and it's essential to understand how they evolved over time. The first stock exchange was established in Antwerp, Belgium in 1531, where brokers and moneylenders would meet to deal with business, government, and individual debt issues.

The Amsterdam Stock Exchange, established in 1602, was the first official stock exchange, and it introduced formal trading of company shares and bonds. This marked the beginning of the modern stock market.

In the 1600s, Amsterdam was the hub of the stock market, while London and New York were still in their early stages. The London Stock Exchange was formed in 1773, and the New York Stock Exchange was founded in 1792, starting with just a few government bonds traded under a buttonwood tree.

The Buttonwood Agreement, signed by 24 stockbrokers on May 17, 1792, set rules and regulations for trading securities, marking the beginning of organized stock trading in the United States. This agreement laid the foundation for the New York Stock Exchange, which would become the largest and most influential stock exchange in the world.

Here's a brief overview of the first stock exchanges:

These early exchanges paved the way for the modern stock market, providing a platform for companies to raise capital and for investors to participate in corporate growth.

The New York Stock Exchange (NYSE) has a rich history that dates back to 1792. It was formed by 24 stockbrokers who signed the Buttonwood Agreement under a buttonwood tree on Wall Street in New York City.

The NYSE quickly became the most powerful stock exchange in the United States, with its location supporting business and trade coming to and going from the country. With listing requirements and fees, the NYSE became a wealthy institution.

The exchange faced little domestic competition for over two centuries, and its international prestige rose in tandem with the growing American economy. By the early 20th century, the NYSE was the most important stock exchange in the world.

The NYSE has a long history of innovation, from its early days of trading securities to the present day. Today, the NYSE offers a wide range of tools and features to help investors make informed decisions.

Here are some key features of the NYSE:

As of January 2024, the top five exchanges by market capitalization are the NYSE, Nasdaq, Euronext, the Shanghai Stock Exchange in China, and the Japan Exchange Group.

The largest stock exchange in the world is the New York Stock Exchange, with a market capitalization of $25.1 trillion. This is a staggering amount of money, and it's no wonder that the NYSE is considered one of the most influential stock exchanges globally.

The NYSE is followed closely by the Nasdaq, which has a market capitalization of $16.2 trillion. The Nasdaq is home to many of the world's largest and most innovative companies, including tech giants like Apple and Google.

The Shanghai Stock Exchange in China comes in third, with a market capitalization of $6.7 trillion. The Shanghai Stock Exchange has been growing rapidly in recent years, and it's now one of the largest stock exchanges in the world.

Here are the top 9 largest stock exchanges in the world, ranked by market capitalization:

The rest of the top 9 largest stock exchanges in the world are the Shenzhen Stock Exchange, the Hong Kong Stock Exchange, the National Stock Exchange of India, and the London Stock Exchange.

The stock market has a proven track record of delivering impressive returns over the long term. Since the S&P 500 was introduced in 1957, its annual return, including dividends, has averaged over 10% through the end of 2024.

Going back even further to 1928, the annual return averages 10.06%. This means that if you had invested $100 in 1928, you'd have nearly $800,000 as of the end of 2023.

The S&P 500's average annual return is not just impressive; it's also consistent. From 1957 to 2024, the S&P 500's average inflation-adjusted return was 3.8%, exceeding the inflation rate by 3.8% per year.

This high return is not just a result of the stock market's performance; it's also a reflection of the economy's growth. As the economy grows, so do the companies that make up the S&P 500, resulting in higher returns for investors.

Investors can use the S&P 500's average annual return to set realistic expectations for the future. Although past performance is never a guarantee of future results, it can help to understand that if the future does resemble the past, then stock market returns may be similar.

Market factors have played a significant role in shaping the history of the equity market. The establishment of stock exchanges in the 17th century, as mentioned earlier, was a key factor in the growth of the market.

The Dutch East India Company's issuance of the first stock in 1602 was a pivotal moment in the development of the equity market. This event marked the beginning of a new era in finance.

The rise of joint-stock companies in the 18th century led to an increase in the number of publicly traded companies, further expanding the equity market.

The stock market can be a wild ride, with returns varying significantly from year to year. Some years see double-digit positive returns, while others experience double-digit losses.

The Great Depression is a stark example of this volatility, with the S&P 500 equivalent experiencing a 43.81% gain in 1928, followed by four consecutive years of losses, including a 43.84% drop in 1932.

The market can bounce back from downturns, as seen in 1933, when it rebounded with a 49.98% gain. But if you pull your money out during a downturn, you risk missing out on potential gains, like the 46.74% increase in 1935.

This same dynamic has played out throughout history, including during the Great Recession and as recently as 2021 to 2023. The long-term gains of the S&P 500 have averaged around 10% per year, but the ups and downs of annual returns can be smoothed out over time.

Low interest rates can boost stock prices because they make bonds less attractive, driving demand for stocks instead. This is especially true when bonds aren't paying much interest.

High interest rates, on the other hand, can hurt stock prices.

Low interest rates can also help companies by making it less expensive for them to borrow money, which can be used for business expansion activities.

Investor sentiment plays a significant role in market movements, often driven by psychological factors rather than financial data.

Investors can become overly pessimistic, leading to a self-fulfilling prophecy of falling stock prices.

A possible recession can spark investor anxiety, causing them to sell stocks, even if there's little indication of an impending downturn.

As investors sell, prices drop, which can further fuel panic selling and drive the market down.

Geopolitical events can affect the U.S. stock market, causing investors to sell stocks if they fear that geopolitical events could impact companies' bottom lines.

Wars in the Middle East, for example, can affect oil prices, which then affects companies' energy costs and consumers' budgets.

This can lead to a decrease in consumer spending, which can negatively impact companies' sales and ultimately their stock prices.

The ripple effect of geopolitical events can be far-reaching, impacting various industries and sectors in unpredictable ways.

The stock market has experienced its fair share of crashes, with the largest ones including the Tulip Mania in 1637, which saw a 99% decline in tulip bulb prices, and the 1929 Wall Street Crash, which resulted in a 25% decline in the Dow Jones Industrial Average.

One of the most notable crashes in recent history is the 2008 Global Financial Crisis, which saw a 37% decline in the Dow Jones Industrial Average. This crash was caused by the housing market bubble bursting and the subsequent subprime mortgage crisis.

Despite these crashes, the stock market has historically provided positive returns over the long term. According to DQYDJ, the S&P 500 has averaged over 10% per year since its introduction in 1957, including dividends. Over the past decade, the S&P 500 has returned an annual average of 13.3% with dividends, outpacing the historical average.

Here are some of the largest stock market crashes in history, along with their corresponding percentage declines:

The S&P 500 has also seen significant returns over the past decade, with an average annual return of 13.3% with dividends. This is in line with the long-term average return of over 10% per year, making the stock market a viable option for long-term investors.

The world of finance can be unpredictable, and major crashes are a sobering reminder of that. The largest stock market crashes in history are a testament to this unpredictability.

The Tulip Mania of 1637 saw a 99% decline in tulip bulb prices, making it one of the most significant crashes in history. The South Sea Bubble of 1720 was another major crash, with a 96% decline in the South Sea Company's stock price.

The Panic of 1907 was a significant event, with a 49% decline in the New York Stock Exchange. The Wall Street Crash of 1929 was a major blow, with a 25% decline in the Dow Jones Industrial Average.

Some of the most significant crashes include the Penn Central Transportation Company Collapse in 1970, which saw a 70% decline in Penn Central stock prices. The 1970s Bear Market also had a significant impact, with a 47% decline in the Dow Jones Industrial Average.

Here are some of the most significant stock market crashes in history:

The 1980s saw several significant crashes, including the Black Monday crash of 1987, which saw a 22.60% decline in the Dow Jones Industrial Average. The Japanese Asset Price Bubble Collapse of 1989 was another major event, with a 75% decline in the Nikkei 225 stock index.

The stock market can be a wild ride, but understanding average returns can help you navigate it. The S&P 500 has returned an annual average of 13.3% over the past 10 years, outpacing its historical average.

The S&P 500's average return, including dividends, has been 10.06% since 1928. That's a staggering figure, especially when you consider that $100 invested in 1928 would be worth nearly $800,000 today.

Inflation can erode the purchasing power of your investments, but the S&P 500 has still managed to exceed the inflation rate by 3.8% per year since 1957. This means that even after accounting for inflation, the S&P 500 has still provided a real return of 3.8%.

Here's a rough breakdown of the S&P 500's annual returns over the past decade:

The key takeaway here is that the stock market's long-term returns are historically positive. If you can stay in the market for several years, or even decades, that's when you'll see the most growth.