NEW YORK -- As the end of the century approaches, the United States is an economic juggernaut, the envy of the world. Investors, riding a wave of euphoria, flock to the financial markets in an unprecedented speculative flurry.
A century ago it wasn't so different.The 1899 parallels with today's booming economy are remarkable. Then as now, the Dow Jones Industrial Average rallied in the final three years of the century -- about 70 percent through the end of November in both cases. Commentators saw similar reasons for the gains: globalization, technological improvements, medical discoveries, the move to a market versus a command economy.
The Dow industrials shot to records as road, metal and communications companies merged and investments poured into new enterprises. Stock-market volume soared to new highs. Million-share days became common on the exchange, just as, 100 years later, billion-share days have become routine.
Even the one or two stray clouds on the horizon seem similar. In 1899, much trepidation arose over a rise in the Bank of England's discount rate to more than 6 percent, to curb excessive strength in the economy. This year, the 30-year bond yield's move above 6 percent has caused similar distress.
In 1899, the bulls were stampeded by an unfavorable Supreme Court decision on a merger involving Addison Pipe. Today, antitrust regulators are going after Microsoft, periodically scaring the daylights out of the market.
From 1899 to 1999, the Dow average rose from 66 to 11,000. Adding in dividends of about 3 percent, that works out to a compounded return of 81/4percent. An investment of $100 in the Dow average in 1899 would be worth $280,000 today.
General Electric Co., one of the 12 Dow stocks in 1899, sells for about $150 today, some 20 percent above where it traded 100 years ago. But that's not counting dividends, and the fact that one 1899 share of GE would be 400 shares today because of stock splits. That's before the 3-for-1 split that GE plans in January. That same $100 invested in GE would have grown to $8.3 million, taking splits and dividends into account.
And that's by no means atypical. Many drug and chemicals companies, as well as office-equipment makers including International Business Machines Corp., have shown similar returns.
The sobering facts should be taken against the backdrop of the relative insignificance of any short-term ripples in the steady returns that may be expected from stocks in the 21st century.