The Corner for Oct. 4, 2013

This is the first in a two-part series on Wall Street in the 1950s and 1960s

The 1950s and 1960s were decades of transition for Wall Street. After more than 20 years of turmoil, the country was poised for better times the Street was poised for a bull market. The last genuine bull market had occurred before the 1929 Crash during the giddy 1920s when the public thought that the excesses of previous bull markets would never occur again. When the Korean War ended, an enormous pent-up demand exploded for consumer goods, new homes and even stocks.

Politics also smiled upon the Street. A Republican was in the White House for the first time since 1932. Eisenhower symbolized his era – a war hero who triumphantly entered politics with tremendous popular support. The political climate encouraged growth, and that became the dominant theme for investing for the next 20 years. The stock market bid up the price of companies that demonstrated earnings growth and many new concepts appeared that employed the idea of constant expansion in their strategies. While the bull market of the 1920s was a speculative bubble that of the 1950s would be supported by slow constant non-speculative expansion.

Investing also became popular with middle-class investors for the first time in a generation. Like most great declines, memories of the ‘29 Crash and bank failures of the late 1920s and early ‘30s were still strong, but a new confidence had replaced the 1930s’ notion that bankers and brokers could not be trusted. The strong economy put more money in people’s pockets and many were attracted to stocks. Investment advice became popular and was occasionally heard on radio and found in magazines and newspapers.

Stockbrokers came in from the cold and became respectable again, ranking high on the lists of those professionals admired most.

Mutual funds developed again after a 30-year hiatus. They attracted small investors who did not have large sums to invest in the market but still wanted to participate in the country’s growth. Shareholder activism began to develop. Shareholders large and small started to ask how their companies were making money and occasionally raised social concerns as well. Annual meetings would no longer be quiet affairs between a company and its institutional shareholders. Small investors began to assert themselves as never before.

The 1950s were not quite the halcyon sitcom years portrayed on television and in other popular media. The Cold War appeared in full force. When the Russians beat the Americans into space by launching Sputnik in 1957, the country was shocked. New technologies made the prospect of global war more possible than the more conventional wars fought in the past, and stock in companies that produced cutting-edge armaments and materials was in the most demand. Defense contractors became the most sought-after companies in the market. Anything that had to do with space or war quickly became favorites.

A new form of company arose that sought to capitalize on the new trends of the late 1950s. Massive new corporations were being formed by a new breed of corporate leader who came from outside the established main line of American industrialists. This new breed of chief executive was committed to assembling a vast, disparate array of companies under one corporate roof called the conglomerate. While the conglomerates were widely diversified, their chief preoccupation was the defense business. They were the main contractors to the military and became part of the hotly debated military-industrial complex that dominated Wall Street and the defense establishment between the Korean War and the mid-1970s.

The stock market picked up momentum after the Korean War and the averages began to rise in 1954. The Dow Jones Industrial Average would almost triple in value during the 1950s. The increase was very orderly, with no major spikes to the averages despite Eisenhower’s 1955 heart attack and two recessions that temporarily set the market back. The enormous growth unlocked by increased production, based on renewed consumer spending, helped many stocks rise. America was in the process of becoming suburbanized, and consumers spent more on housing, automobiles and other consumer durables than ever before. The national highway system was begun, making the automobile even more of a necessity than it was before. Automobile manufacturers, defense contractors, computer companies and pharmaceutical and technology companies became the new blue chips, replacing the wheel horses of the previous decades. Check in next week for the “rest of the story.”

Quote of the week: “In the lexicon of youth, which fate reserves for a bright manhood, there is no such word as fail!” —  Bulwer-Lytton, Richelieu, III, 1

Bart Ward is the chief executive officer of Ward & Co. Ltd., an Anoka-based registered investment adviser – specializing in the management of stock and bond portfolios in companies which are listed on the NYSE.

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