The Four Year Bull Market Part 1

OBITUARIES of the “Coolidge bull market” may be premature but the long and persistent advance in stock prices that has lasted for four years has already become one of the major events in American financial history.

To the speculator who trembles when one of his issues drops five or ten points, its course may have seemed erratic at times, but a longer range view shows that the upward march has suffered only comparatively minor interruptions.

After the exciting post-war boom, the market mounted the toboggan near the end of 1919 and started a slide which lasted throughout most of the next year. In 1921 and 1922 prices recovered moderately but they slumped again in 1923 and the early part of 1924. It was in the spring and summer of 1924 that the “Coolidge bull market” got under way.

The first half of 1924 had seen something of a depression in business which was largely the result of unfavorable conditions in the agricultural areas. The Federal Reserve authorities have been criticized sharply for some of their recent acts but, at this time, they obviously chose the proper course. They pumped money into the open market by purchasing $500, 000, 000 worth of Government securities and emphasized the easy money situation by reducing rediscount rates from 4 1/2 per cent, where they had been established in 1923, to 3 per cent. The gold attracted by the high interest rates of previous years had widened the credit base to very comfortable proportions.

Aided by the Reserve policy, business threw off its depression and, by its activity, helped to justify higher stock prices, which soon materialized. The other forces working to boost prices were the growing supply of investment capital and an increasing preference for common stocks. The popularity of common stocks was undoubtedly accentuated greatly by Edgar Lawrence Smith’s book. “Common Stocks As Long Term Investments,” an inviting survey of the profits that had been made since the beginning of the century in high-grade junior securities. A furious burst of buying followed the re-election of President Coolidge but the event itself was probably not a major influence, except in that it prevented radical interference with business. Under any conservative President, the stock market’s history would probably have been the same.

Source: Outlook, October 17 1928

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