In November 1917, the prices of most stocks were between 20 and 70 percent below where they had stood a year before. The plummet was so steep that rumors abounded that the Stock Exchange would be entirely shut down, permanently.

This article from the time interviewed former Director of the U.S. Mint George E. Roberts for his analysis of the stock market’s plummet. He laid the blame at four causes, quoting directly:

1.) The demands of the Liberty Loan. Every one [sic] has subscribed or has pledged to subscribe about all the spare cash he can must for the coming few months.

2.) The collateral demands of the war, the Red Cross, the hundred and one charities which reach forth on every hand to waylay the pocketbook.

3.) The vast needs for new and quick industrial investments to meet the munition and supply demands of the war.

4.) The uncertainty of the immediate future. Those who have available cash hesitate to invest it in stocks or bonds, even at the present ridiculously low prices. They would rather wait a bit and see what the Winter brings forth.

The market eventually self-corrected. In fact, if you had invested $1,000 in Coca-Cola stock during its original 1919 initial public offering, two years after this article was published, that stock would be worth $9.8 million today.

A century later in 2017, the opposite question is being asked: why does the stock market keep going up? Derek Thompson of The Atlantic recently wrote an excellent article analyzing this question after the Dow reached a new record high.

Thompson, like Roberts a century before him, laid out three or four reasons for the stock market’s performance:

1. It’s simple: Corporations everywhere are making a bunch of money.

2. A1 chaos doesn’t drive the business cycle.

3. There aren’t many obvious signs of bubbles, or causes for imminent corrections.

Thompson’s reason #2 in particular on its face may seem to contradict Roberts in 1917, since Roberts’ theory was that the page-A1 chaos of the time — namely World War I — was exactly what was driving the business cycle.

Then again, WWI truly consumed everything about the economy, politics, culture, and life. By contrast, Trump’s headline-driving tweet of the day usually generates more of a “Wasn’t that interesting?” response (or “Wasn’t that terrifying?” depending on who you ask) rather than proving transformative to the markets.

Usually… but not always. After Trump tweeted attacking their respective companies, Amazon’s stock market value dropped $5 billion, Boeing dropped $550 million, and Toyota lost $1.2 billion in five minutes.

 

Why Stocks Tumbled: No Business Panic and No Prospect of One, Says George E. Roberts, Banker — Wartime Causes of Low Prices

From Sunday, November 11, 1917