Stock Market

Many of the companies that you buy products from also sell pieces of their companies to investors.  With new technology, average Americans invest money hoping to make a profit.  The U.S. Stock Market is one of the most visible signs of the economic health of the nation.      Over time the stock market has seen massive price changes with long boom cycles as well as periods of correction and even crashes.  In this summary, we examine the basics of the market that shows up on smartphone apps, tv screens, and daily newspapers.

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___ ____ is an actual street in Manhattan where the New York Stock Exchange resides, but is also a catch-all phrase to refer to big investment firms.

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bear market is a sustained period of increasing stock prices based on investor concern and the expectation of lower growth and corporate earnings. 


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bull market is a sustained period of rising stock prices underpinned by investor confidence and the anticipation of continued growth and higher corporate earnings.


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Which of the following is not a name for the Dow Jones Industrial Average?

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Which of the following corporations are not current members of the D.J.I.A.?

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Which of the following corporations are current members of the Dow?

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What is an I.P.O.? 


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correction in the stock market refers to a drop of ___% in the value of any stock market index like the D.J.I.A. 


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During which decade was the dot-com bubble in the stock market?

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A stock market crash is a sudden drop of more than 10% over a short number of trading days.  A crash is typically unexpected and involves panicked selling of stocks, resulting in plummeting prices. 


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In which years were notable stock crashes?

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  • Mo

___ ____ is an actual street in Manhattan where the New York Stock Exchange resides, but is also a catch-all phrase to refer to big investment firms.

Show Answer
  • + Add tag
  • Immunology
  • Cell Biology
  • Mo

bear market is a sustained period of increasing stock prices based on investor concern and the expectation of lower growth and corporate earnings. 


Show Answer
  • + Add tag
  • Immunology
  • Cell Biology
  • Mo

bull market is a sustained period of rising stock prices underpinned by investor confidence and the anticipation of continued growth and higher corporate earnings.


Show Answer
  • + Add tag
  • Immunology
  • Cell Biology
  • Mo

Which of the following is not a name for the Dow Jones Industrial Average?

Show Answer
  • + Add tag
  • Immunology
  • Cell Biology
  • Mo

Which of the following corporations are not current members of the D.J.I.A.?

Show Answer
  • + Add tag
  • Immunology
  • Cell Biology
  • Mo

Which of the following corporations are current members of the Dow?

Show Answer
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  • Immunology
  • Cell Biology
  • Mo

What is an I.P.O.? 


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  • Immunology
  • Cell Biology
  • Mo

correction in the stock market refers to a drop of ___% in the value of any stock market index like the D.J.I.A. 


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  • Immunology
  • Cell Biology
  • Mo

During which decade was the dot-com bubble in the stock market?

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  • Immunology
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A stock market crash is a sudden drop of more than 10% over a short number of trading days.  A crash is typically unexpected and involves panicked selling of stocks, resulting in plummeting prices. 


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In which years were notable stock crashes?

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Table of contents
    • What is the stock market?
    • What is the Dow Jones?
    • What do stock market corrections and crashes look like?
    • Key takeaways

    Stock Market Definition

    The stock market refers to an exchange where shares of corporations are bought and sold.


    These shares, known as stock, are pieces of companies that are traded by both professionals and amateur investors both in-person and online. Stocks range in quantity up to millions of shares with prices from fractions of a penny to hundreds of thousands per share.

    Stock Exchanges and Markets

    In addition to stocks, investment bonds and mutual funds (groups of stocks) are other financial instruments that are bought and sold by public companies. Electronic exchanges have grown in popularity although central trading centers in places like New York (New York Stock Exchange) and Chicago (Chicago Stock Exchange) still operate with some traditional, in-person raucous processes.

    Wall Street is an actual street in Manhattan where the New York Stock Exchange resides, but is also a catch-all phrase to refer to big investment firms.

    Investment firms, like the corporations they invest in, can be both public and private. Privately-held companies hold their own stock with the general public unable to invest.

    Legendary billionaire investor Warren Buffet's company, Berkshire Hathaway is a company that simply owns shares of other companies. Shares in its Class A stock cost over $400,000 per share in 2022! The company is worth over $600 billion and owns shares of major corporations with household names.

    images of bear and bull, the stock market, StudySmarterFig. 1 Bull Market v. Bear Market, Pixabay.

    Bull Markets v. Bear Markets

    A bull market is a sustained period of rising stock prices underpinned by investor confidence and the anticipation of continued growth and higher corporate earnings.

    A bear market is a sustained period of declining stock prices based on investor concern and the expectation of lower growth and corporate earnings.

    It can be hard to decide when a bull or bear market begins. Many financial professionals use the following metric:

    ↔ a period when stock prices rise by 20%, after a drop of 20%. This is typically followed by a second 20% decline in stock values.

    Recent Bull and Bear Markets

    1982-2000 - bull market

    2000-2009 - bear market

    2009-2020 - bull market

    2022 - potential bear market (markets are analyzed after some time has passed)

    The Dow Jones and the Stock Market

    The Dow Jones Industrial Average, also known as the "D.J.I.A.", "Dow Jones", or "Dow", is an index of 30 big corporations in America. These companies are changed throughout history as the size of the company and importance shifts. The original 12 companies that made up this list in 1896 are all gone (General Electric, still in operation, was removed from the list in 2018) and were big industrial corporations.

    Think of it like your grade point average in school. You might do well in Math, Science, and History, but not in English. If someone asked about your English grade it might not show your overall progress as a student. Averaging some of the biggest and most influential companies in the country allows us to look at the economy with a clearer lens. As an investor, you gain a better sense of the trajectory of the market.

    How many of the current Dow companies do you recognize?

    Currently, the Dow Jones Industrial Average, which uses a weighted average of 30 currently influential corporations, includes:

    Company IndustryYear Added
    3M Chemical and Materials1976
    American Express Financial1982
    Amgen Pharmaceutical2020
    AppleElectronics2015
    BoeingAerospace / Defense1987
    Caterpillar Machinery1991
    Chevron Oil2008
    Cisco IT2009
    Coca-Cola Beverage1987
    DisneyEntertainment1991
    DowChemical2019
    Goldman SachsFinancial2013
    Home DepotHome Improvement1999
    HoneywellMaterials and Electronics2020
    IBMIT1979
    IntelComputer1999
    Johnson and JohnsonPharmaceutical1997
    JP Morgan ChaseFinancial1991
    McDonald'sFood1985
    MerckPharmaceutical1979
    MicrosoftComputers1999
    NikeClothing2013
    Procter and GambleConsumer Goods1932
    SalesforceIT2020
    TravelersInsurance2009
    UnitedHealthHealth Care2012
    VerizonTelecommunications2004
    VisaFinancial2013
    Walgreens Boots AllianceRetail2018
    WalmartRetail1997

    Dow Jones Industrial Average Index 2022, StudySmarter Original.

    Stock Exchange, USA stock exchange, StudySmarterFig. 2 New York Stock Exchange

    Stock Market Graph

    The Dow Jones is the most often mentioned and publicly followed indices of the stock market. The other two major indices are the Nasdaq Composite and the S&P 500. The Nasdaq measures 500 primarily technology companies while the S&P measures the 500 largest companies that are publicly traded.

    Historically, stock prices have risen over time with noticeable periods of decline as well as spans of intense growth. Using the following graph, note the Stock Market Crashes of 1929 and 2008.

    graph of dow jone industrial average, stock market, StudySmarterDow Jones Industrial Average from December 1789 to March 2016 (monthly closings). Delphi234, Wikimedia Commons

    What is an I.P.O.?

    An I.P.O. or Initial Public Offering is when a corporation offers shares of its company to public investors on an open exchange. Initial enthusiasm and interest often drive the price per share well above the initial, posted price. Companies sell stock to raise money for growth and operations. Investors bet on rising stock prices as a company expands.

    Stock Market Corrections

    Over time, significant stock market drops have impacted financial markets and cost investors lots of money. A correction in the stock market refers to a drop of 10% in the value of any stock market index like the D.J.I.A. Once stocks go up by 10% or at least reach a price higher than before the correction - a recovery is charted.

    Some investors and analysts look at corrections as predictors of an impending bear market. Since the fall of 1974, there have been 25 market corrections and bear markets occurred after the following market corrections:

    1. 1980
    2. 1987
    3. 2000
    4. 2007
    5. 2020

    2022 had the most recent stock market correction.

    Dot-Com Bubble

    The famed dot-com "bubble" was a selloff and collapse of many new internet-related and technology stocks that grew in the 1990s. Beginning in March 2000, a sell-off of inflated stocks began, which culminated in around $5 trillion in lost value.

    Market corrections are obviously distressing to both short and long-term investors who typically fear a bear market. The most concerning scenario is known as a market crash.

    Stock Market Crash

    A stock market crash is a sudden drop of more than 10% over a short number of trading days. A crash is typically unexpected and involves panicked selling of stocks, resulting in plummeting prices.

    Notable Stock Market Crashes

    • 1907 - The Panic of 1907 was an October drop of 50% on the New York Stock exchange.

    • 1929 - Black Tuesday and the Stock Market Crash of 1929 contained a cumulative drop of 40% over a month. On Black Monday (October 28, 1929) and Black Tuesday (October 29, 1929) the Dow Jones plunged 23% in just two days.

    • 1987 - Black Monday (Oct. 19, 1987), marked the largest one-day stock market decline in U.S. history. On that one day the Dow dropped 23%, the S&P 500 dropped 20% and the Nasdaq dropped 11% (saved by an early system failure).

    • 2008 - Housing/financial crisis of 2008 in October 2008. Over five days the Dow dropped 18% and the S&P lost 20% with record-setting selloff volume.

    • 2020- February and March Coronavirus-related selling caused a major double-digit selloff in the stock market.

    During the Great Depression that began after the 1929 Stock Market Crash, the SEC (the Securities and Exchange Commission), was created to police the stock market. Formed in 1934 to prevent future economic casualty, the SEC regulated the markets and sets limits on trading, accounting, and reporting of prices, earnings, etc.

    The Stock Market - Key takeaways

    • The stock market refers to an exchange where shares of corporations are bought and sold.
    • A bull market is a sustained period of rising stock prices underpinned by investor confidence and the anticipation of continued growth and higher corporate earnings whereas a bear market is the opposite.
    • A stock market crash is a sudden drop of more than 10% over a short number of trading days. A crash is typically unexpected and involves panicked selling of stocks, resulting in plummeting prices.
    • The Dow Jones Industrial Average is an index of 30 big corporations in America.
    • A correction in the stock market refers to a drop of 10% in the value of any stock market index.
    • A stock market crash is a sudden drop of more than 10% over a short number of trading days.

    References

    1. Fig. 2 USA stock exchange (https://commons.wikimedia.org/wiki/File:USA_Stock_Exchange.JPG) by Roland Weber (https://commons.wikimedia.org/wiki/User:Roland_Weber) licensed by CC BY 3.0 (https://creativecommons.org/licenses/by/3.0/deed.en) on Wikimedia Commons.
    Frequently Asked Questions about Stock Market

    What is a stock market correction?

    A stock market correction refers to a drop of 10% in the value of any stock market index. 

    When was the last stock market correction?

    The last stock market correction was in 2022.

    What caused Black Friday?

    Black Tuesday was caused a sudden panic among sellers on the New York Stock Exchange.

    Why did the stock market crash in 1929?

    In 1929, a sudden selloff in stocks resulted from panicked actions and realization that many of the stock price increases in the 1920s were unfounded.

    What is the stock market?

    The stock market refers to an exchange where shares of corporations are bought and sold.  

    Test your knowledge with multiple choice flashcards

    ___ ____ is an actual street in Manhattan where the New York Stock Exchange resides, but is also a catch-all phrase to refer to big investment firms.

    A bear market is a sustained period of increasing stock prices based on investor concern and the expectation of lower growth and corporate earnings. 

    A bull market is a sustained period of rising stock prices underpinned by investor confidence and the anticipation of continued growth and higher corporate earnings.

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