What Is Wall Street? Its Definition, History, Role in Investing

It might seem a bit challenging to tell what Wall Street is all about considering its presence in the financial space as a geographical location and as a host to stock exchanges. Being home to many financial institutions, including major banks, investment firms, and regulatory bodies like the Securities and Exchange Commission (SEC), Wall Street has a great impact on the financial market.

Wall Street plays a crucial role in the trading of stocks, bonds, and other financial instruments. Below is the guide to help you understand all about Wall Street and simplify your journey when seeking to venture into the stock market.

What Is Wall Street?

The answer to what Wall Street is comes versatile as it is a term that wears two hats, one as a physical location and the other as the central point of the United States’ financial space.

Geographically, Wall Street can be described as a mere eight-block-long street in Manhattan, New York, stretching from Broadway to South Street. Notably, this street serves as a location where you can find the iconic New York Stock Exchange (NYSE), banks, financial institutions, and major corporations.

Nonetheless, Wall Street is more than just a place. It is a symbol and the driving force behind American capitalism. It is a sum up of everything from investment banks and hedge funds to securities traders and portfolio managers. Apparently, Wall Street is the beating heart of the American financial industry. The association between Wall Street and finance has deep historical roots, with many of the most influential brokerages and investment banks historically setting up shop in and around this street, all to be close to the NYSE.

Wall Street’s History

The history of Wall Street is a tale of growth and turmoil. It began with a protective wall in the 17th century, evolved into a financial hub with the Buttonwood Agreement in 1792, and witnessed major crises like the 1929 stock market crash and the 1987 Black Monday. These events shaped Wall Street’s remarkable significance in the world of finance.

Early Years

The early years saw Wall Street finding its name in the roots of history. In 1653, Dutch colonists built a protective wooden wall in lower Manhattan to shield themselves from British and Native American threats. Although the wall came down in 1699, the name “Wall Street” remained.

Wall Street’s journey into finance began in 1792 with the Buttonwood Agreement. This happened after its significance grew in the 1700s, thanks to its proximity to New York’s ports.

The agreement was signed by 24 influential brokers and merchants under a buttonwood tree on Wall Street. It laid the foundation for a commission-based securities trading system, essentially birthing a members-only stock exchange. The early trades included war bonds and stocks from institutions like the Bank of New York.

From this small seed, the mighty oak of the New York Stock Exchange sprouted. By 1817, the Buttonwood brokers rebranded themselves as The New York Stock and Exchange Board. After various temporary locations, they settled at Wall and Broad Streets in 1865. As the United States expanded, more major exchanges set up shop nearby, such as the New York Mercantile Exchange, New York Board of Trade, New York Futures Exchange (NYFE), and the American Stock Exchange (now NYSE American Options). To be close to the action, banks, brokerage firms, and financiers flocked to the Wall Street area.

Explosion on September 16, 1920

In 1920, a shocking event rattled Wall Street. It was around lunchtime on a  memorable day when a horse-drawn cart pulled up at 23 Wall Street, right in front of JPMorgan & Co.‘s headquarters. This bustling corner of the city was crowded with people heading out for lunch. Suddenly, the cart exploded. It had been secretly loaded with dynamite and sash weights, which were sent flying through the air.

This devastating explosion marked the worst domestic bombing in US history at the time and claimed the lives of 40 people, with another 300 suffering injuries. Besides, it severely damaged the interior of the JPMorgan building.

Despite the horrific nature of the event, no group claimed responsibility, and the case remained unsolved. However, because the explosion targeted the Morgan building, seen as a symbol of American capitalism, it was attributed to “Reds”, anarchists, and communist sympathizers. Also, the suspicions seem to have been triggered after the discovery of anarchist flyers in a mailbox nearby.

Black Friday (1929)

In 1929, Wall Street witnessed a significant crash which was tagged as the stock market crash of 1929. Kicking off on October 24, the crash caused an unexpected turn after nearly a decade of unbroken stock market growth.

Back in those days, before digital trading, the New York Stock Exchange was at the heart of it all. Hence, it turned out to be the most severe financial crisis in US history. October 28th and 29th were the worst days as prices were plummeting so rapidly that ticker tapes and blackboards couldn’t keep up.

As part of the major incidents, the Dow Jones Industrial Average (DJIA) tumbled a staggering 89% from its peak in September 1929, wiping out both corporate and individual wealth. This crash marked the beginning of the Great Depression, where a quarter of the US working population lost their jobs, and economic turmoil spread across Europe. The impact was profound, reshaping the perspective and relationship of an entire generation with the financial markets and affecting nearly every segment of society.

Black Monday (1987)

On October 19, 1987, another drastic event took place on the Wall Street. Prior to that, the S&P 500 Index and Dow Jones Industrial Average experienced a jaw-dropping plummet of over 25% in value. This dramatic fall triggered a ripple effect, causing exchanges worldwide to spiral into a similar frenzy. In the week leading up to Black Monday, indices had already dropped by around 10%, setting the stage for the impending panic.

Amid the chaos, Chairman Alan Greenspan and the Federal Reserve played a crucial role in preventing what could have been a catastrophic global disaster. However, the crash highlighted a new concern – the potential for computer programs, which were still relatively new at the time, to spark massive waves of trading. Surprisingly, despite the rise of computers, a significant portion of trading that day was still managed by humans.

The exact cause of this abrupt crash remains a mystery to this day. Nonetheless, in its aftermath, exchanges took action by implementing circuit breaker rules. These rules were designed to prevent program trading from triggering uncontrolled selling frenzies. The hope was that such trading safeguards, along with other measures, would provide the markets with the time needed to regain stability and allow regulators and investors to take the necessary steps.

Occupy Wall Street (2011)

In the history of Wall Street and the core of modern activism, 2011 marked the emergence of Occupy Wall Street, a protest movement echoing concerns about the stark disparities in society’s social and economic fabric. The epicenter of this movement was Zuccotti Park, nestled within the Financial District of Manhattan.

On September 17, hundreds of demonstrators converged on the park, pitching tents and raising their voices against inequality. For two months, they made Zuccotti Park their temporary home, but on November 15, the police intervened, leading to arrests and the dismantling of their encampment.

During those eventful weeks, the air was filled not only with the sounds of peaceful protests but also passionate speeches. Their collective demands resonated with many: a fairer distribution of wealth, the creation of better-paying jobs, reforms within the banking sector, and a reduction in corporate influence over politics. Their rallying cry, “We are the 99%”, encapsulated the spirit of Occupy Wall Street, reflecting the belief that the vast majority should not bear the brunt of economic inequality.

Wall Street Today

The emergence of Wall Street into its current state has been shaped by responses to historical financial crises and the necessity for regulation.

In the aftermath of the catastrophic 1929 stock market crash, regulatory reforms were enacted. The Securities Act of 1933 mandated that financial institutions provide comprehensive information about securities and prevent fraud in their sales. Simultaneously, the Securities Exchange Act of 1934 established the Securities and Exchange Commission (SEC), empowering it with significant authority to regulate brokerage firms and mandate financial reporting by publicly traded companies.

Decades later, the 2007-2008 financial crisis prompted the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010. This comprehensive legislation created new government agencies to oversee the financial system, aiming to rectify risky practices and regulatory gaps. It addressed concerns such as predatory mortgage lending and the stability of financial institutions. The Dodd-Frank Act introduced measures like the Volker Rule to restrict bank investments, regulated derivative securities, and established the SEC Office of Credit Ratings to ensure accurate credit agency ratings.

Notably, Wall Street has evolved in the middle of these waves, adapting to lessons learned from financial crises. As of today, Wall Street has emerged as a more regulated and accountable financial body representing a symbol and the driving force behind American capitalism.

The Importance of Wall Street

Wall Street serves as a financial hub encompassing various markets like stocks, bonds, commodities, futures, and foreign exchange. Originally, these markets existed to help companies raise funds, grow, and generate jobs. However, over time, trading itself became highly profitable, leading to a wide range of trades, some quite unconventional. Hence, the importance of Wall Street in the financial space cannot be overemphasized with its great impact on the world’s economy.

Notably, Wall Street holds a significant global economic importance. It houses some of the world’s largest financial institutions and employs hundreds of thousands. Hosting the NYSE and Nasdaq stock exchanges, it lists major corporations like Amazon.com Inc (NYSE: AMZN), Google LLC, Apple Inc (NYSE: AAPL), and Exxon Mobil Corporation (NYSE: XOM). Wall Street’s economic influence extends worldwide, with its financial firms engaged in international business, lending to diverse entities, and financing global projects.

Black Wall Street

The Greenwood neighborhood in Tulsa, Oklahoma, that existed during the early 20th century is described as “Black Wall Street”. It was renowned as one of the most prosperous Black communities in the United States, driven by the stark segregation of the era. Within Greenwood, Black entrepreneurs pooled their resources, fostering a robust local economy with well-paying jobs for its residents.

Tragically, this economic success attracted the attention of White supremacists. On May 30, 1921, an incident involving two teenagers ignited 24 hours of brutal racial violence known as the “Tulsa Massacre”. White mobs pillaged homes and infamously launched the first-ever aerial bombing of a US city, reducing 35 blocks of Black Wall Street to ashes.

Conclusion

Wall Street started as a small street serving as a financial hub for institutions and corporations that were necessitated to establish within its walls. Nonetheless, its influence in the financial space has grown beyond geographical prominence, hence the physical proximity of corporations and financial institutions to Wall Street has become less of a prerequisite.

Wall Street has become a powerful symbol representing the core of the investment business in the United States. The interests, motivations, and attitudes of the key players in the financial industry remain synonymous with “Wall Street”. Regardless of their physical location, financial professionals and institutions are connected by their shared dedication to the world of finance and investment as Wall Street remains a defining concept in the industry.