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Relief at Last for a Damaged Dow

On this day in economic and financial history...

After two consecutive days of the worst crashes in its history, the Dow Jones Industrial Average (INDEX: ^DJI  ) enjoyed one of the most incredible rebounds in its history on Oct. 30, 1929, gaining more than 12% in a frenetic day that saw almost 11 million shares traded on the stock exchange floor. Despite the bounce, the Dow still finished the day 14% lower than its value before Black Monday and 32% lower than its peak at the beginning of September.

The week-long, record-breaking torrent of trading -- so intense and prolonged that many young trade runners passed out on the floor of the National City Bank from exhaustion -- pushed acting New York Stock Exchange president Richard Whitney to suspend Friday's session so that brokerage firms could catch up on their paperwork.

"The most dramatic decline in market history ... appeared to have reached a definite bottom yesterday afternoon," wrote The Washington Post. "Everybody in Wall Street," wrote The New York Times, "was talking about psychology." On Oct. 30, "A new era of good feeling pervaded the financial district. ... Smiles of hope, if not of confidence, took the place of poker faces."

Even nonagenarian oil billionaire John D. Rockefeller -- founder of the broken oil monopoly that created ExxonMobil (NYSE: XOM  ) , ConocoPhillips (NYSE: COP  ) , and Chevron (NYSE: CVX  ) -- got into the action, declaring that earlier declines had gone too far and that he was buying "substantial amounts" of stocks. Rockefeller's comments to reporters echoed earlier statements by business and political leaders about the American economy's strength and integrity, and he was said to be particularly interested in the shares of the Standard Oils that later became ExxonMobil and Chevron.

For many traders, Oct. 30 seemed to signal the end of a devastating bear market, and for a while, it seemed that the worst was really over. The Dow would only decline by another 4% over the rest of 1929. Then 1930 arrived, and by year-end, hope would be crushed by a 12-month decline of 34%. The following year was even worse, as 53% of the Dow's value was destroyed. For the time being, however, worried investors on Wall Street finally had a moment to catch their breath.

Aliens (not really) among us
On Oct. 30, 1938, millions of Americans received an unexpected shock when they tuned their radios to their local CBS (NYSE: CBS  ) radio affiliate and heard what seemed to be a firsthand account of an alien invasion. Orson Welles, reading from a script based on H. G. Wells' The War of the Worlds, put on a career-making performance based on humanity's futile resistance against advanced Martian technological destruction.

The broadcast, meant as the Halloween special for a dramatic radio series, became one of the most enduring pieces of American pop culture. Within weeks, thousands of newspaper articles were published about the broadcast's impact. CBS was the target of many frivolous lawsuits resulting from "mental anguish" caused by the broadcast. The broadcast also spurred Welles' ascent to film greatness, which led to many other indelible moments of American popular consciousness.

Welcome to the big time, Ronald
The Dow was well into a roaring bull market when it decided to add two consumer superstars to its roster on Oct. 30, 1985. Altria (NYSE: MO  ) , then Philip Morris, joined the index after acquiring previous Dow component General Foods, becoming one of the few Dow consituents in history to actually buy its way onto the index. McDonald's (NYSE: MCD  ) was the other addition, replacing American Brands, which had been the Dow's tobacco-industry representative before Philip Morris' ascension.

The Dow closed at a then-record high of 1,376 on Oct. 30, 1985. It has since risen by just more than 850%, but both Philip Morris (plus its spinoffs) and McDonald's have trounced that rate of return over the same time frame. Altria shareholders have earned a total return of almost 4,400% since the company joined the index -- a gain that includes shares of Philip Morris International (NYSE: PM  ) that were distributed in the 2008 spinoff. McDonald's shares have grown by almost 3,400% since joining the Dow. Altria was replaced in 2008, but McDonald's remains an important part of the Dow to this day.

Philip Morris and McDonald's were two of the 1980s' best retail-oriented stocks. Both remain good investments for defensive portfolios, but tomorrow's consumer kings are more likely to be mega-multibaggers for today's investors. Find out more about the "3 Companies Ready to Rule Retail" in the Fool's latest free report. One (or more) of these stocks could be a McDonald's for the 21st century. Click here to find out more, at no cost.

Fool contributor Alex Planes holds no financial position in any company mentioned here. Add him on Google+ or follow him on Twitter @TMFBiggles for more news and insights.

The Motley Fool owns shares of ExxonMobil and McDonald's. Motley Fool newsletter services have recommended buying shares of Chevron and McDonald's. Motley Fool newsletter services have recommended creating a bull call spread position in McDonald's. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Read/Post Comments (2) | Recommend This Article (0)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 30, 2012, at 3:52 PM, carlos1973 wrote:

    The writer may want to check his facts. Frank Phillips started Phillips Petroleum, not John D. Rockefeller. For all of the trivia lovers, Phillips Petroleum acquired Conoco. Most people beleive it was Conoco who acquired Phillips, but Phillips management gave up the name to gain control.

  • Report this Comment On October 30, 2012, at 4:42 PM, XMFBiggles wrote:

    @ carlos1973 -

    It may be a bad choice of words to say "created" rather than "resulted in" or some other phrase, but the intent was only to show the legacy of Standard Oil after its antitrust breakup, not to assert that Standard Oil was the only element of their legacies. Sorry for the confusion.

    - Alex

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