There have been 10 calendar years during the last one hundred in which the Dow Jones Industrial Average rose by more than 30%. The reason for the sharp increases were, in some cases, due to very positive economic conditions. GDP rose over 7% in 1958. Inflation was below 3%. Unemployment was relatively high, but for the most part, it was a strong year economically compared to most others in the second half of the 20th Century.

Very sharp stock market drops in the 1930s, followed by rebounds, are a reason that some years from that period make this list. The market rose 38% in 1935. It had, however, fallen 17% in 1929,  34% in 1930, and 52% in 1931. The 1935 rally was not so significant when put into that context. Economic cataclysms often distort equity values significantly, producing broad market gyrations that do not reflect economic reality.

It would be tempting, but simplistic, to say that the DJIA now faces the “law of large numbers,” which should prevent it from changing by significant amounts since it is near an all-time high. The DJIA peaked at 14,000  in October 2007 and will close 2010 at  about 11,600.  According to this assumption it would be  unlikely for the index to rise to 14,000 quickly or plunge by thousands of points.  Swings of this magnitude are almost unheard of.

It may be wrong to assume that the “law of large numbers”, applies to the Dow, actually. The DJIA rose from 6,600 in March 2009 to 11,200 in April of this year, an improvement of 68% in just over twelve months. The percentage movements in the DJIA sometimes have little to do with the raw number at which the index trades.

One of the most frequently cited reasons for the movement of the Dow is that traders bid the price of the index up or down based on their predictions about the economy six month in the future.  Some of the rebound rallies in the Depression sent wrong signals if that is true. It seems unlikely that the tremendous rally which ended this spring was an accurate predictor of the economy today, based on the current level of unemployment, slow GDP growth, and a deeply troubled housing market.

24/7 Wall St. obtained data on GDP growth from measuringworth.com, unemployment and CPI data from the Bureau of Labor,  Statistics, and historical Dow Jones prices from econstats.com. These are the ten greatest stock market years of the last century.

1915
Dow Jones Change: 81.7%
Dow Jones Close: 99.15
Real GDP Change: 13.87%
Unemployment:  8.5%
CPI Annual Change: 1%

Construction began on the Lincoln Memorial, Albert Einstein developed his theory of general relativity, and Alexander Graham Bell conducted the first successful transcontinental call. The Dow Jones increased more than 80% in a single year, the largest increase in the last century.

1919
Dow Jones Change: 30.5%
Dow Jones Close: 107.23
Real GDP Change: 0.8%
Unemployment: 1.4%
CPI Annual Change: 14.6%

Unemployment was only 1.4% for the year, one of the lowest rates during the 20th century. Rotary dial telephones were invented, and the Eighteenth Amendment made the sale of alcohol illegal in the United States. Prohibition began, and so did daylight savings time.

1928
Dow Jones Change: 48.2%
Dow Jones Close: 300.00
Real GDP Change: 6.05%
Unemployment: 4.2%
CPI Annual Change: -1.7%

In 1928, the roaring 20’s peaked, and the stock market hit new highs, nearly doubling over the course of the year. The Dow ended the year at 300.00, a level it would not reach again for 30 years. Herbert Hoover was elected, Penicillin was discovered, and Amelia Earhart flew across the Atlantic ocean.

1933
Dow Jones Change: 66.7%
Dow Jones Close: 99.90
Real GDP Change: 10.89%
Unemployment: 25.2%
CPI Annual Change: -5.1%

Following the end of the Great Depression, the United States economy improved significantly in 1933.  Franklin D. Roosevelt proposed New Deal programs, many of which would propel the country into recovery.  The Dow Jones increased a whopping 66.7%, up from the previous year’s close of 59.00.

1935
Dow Jones Change: 38.5%
Dow Jones Close: 144.13
Real GDP Change: 13.05%
Unemployment: 20.1%
CPI Annual Change: 2.2%

The U.S. was now in the middle of the Great Depression, the dust bowl devastated the midwest, and the world was on the brink of World War II. Roosevelt signed the Social Security Act into law. The Parker Brothers board game “Monopoly” was introduced.

1951
Dow Jones Change: 43.4%
Dow Jones Close: 269.23
Real GDP Change: 3.83%
Unemployment: 3.3%
CPI Annual Change: 7.9%

Unemployment dropped to 3.3% this year.  GDP also increased a substantial 7.17%.  Americans had a significant amount of disposable income, and automobile sales increased.  The Dow also increased a tremendous 43.4%

1954
Dow Jones Change: 43.96%
Dow Jones Close: 404.39
Real GDP Change: 7.2%
Unemployment: 5.5%
CPI Annual Change: 0.7%

The USS Nautilus, the first nuclear-powered submarine was launched, as was the Boeing 707, the first passenger jet in the U.S. The St. Lawrence Seaway was completed. After finally overstepping his bounds by investigating the Army, Senator Joseph McCarthy’s actions were condemned by the Senate. The Dow Jones closed above 300.00 for the first time since 1928.

1958
Dow Jones Gain: 34%
Dow Jones Close: 583.68
Real GDP Change: 7.17%
Unemployment: 6.8%
CPI Annual Change: 2.8%

In 1958, the stock market made major gains, despite a mixed economy undermined by high prices and rising unemployment. Car sales fell.  The first regular transatlantic passenger flights began operation.

1975
Dow Jones Change: 38.3%
Dow Jones Close: 852.41
Real GDP Change: 5.37%
Unemployment: 8.5%
CPI Annual Change: 9.1%

While inflation increased dramatically in the United Kingdom, rising to 24.2%, it fell in the United States, from 11.3% in 1974 to 9.2% in 1975.  America began to recover from the 1973-1975 recession and the decline in GNP ended in the second quarter.  Microsoft was founded by Bill Gates and Paul Allen this year.

1995
Dow Jones Change: 33.5%
Dow Jones Close: 5,117.12
Real GDP Change: 3.74%
Unemployment: 5.6%
CPI Annual Change: 2.8%

In this year, the World Trade Organization was established, and the Dow closed above 4,000 for the first time. In march, Yahoo! began the operation of its website, ushering in the age of Internet portals and the beginning of what would become the dotcom bubble.

Douglas A. McIntyre, Michael Sauter, and Charles Stockdale

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