200 Years of Bull and Bear Markets
Dr. Bryan Taylor, Chief Economist, Global Financial Data
Global Financial Data (GFD) has extended its coverage of Bull and Bear Markets to begin in 1800 rather than 1900. GFD has the most extensive coverage of stock markets available anywhere in the world.
Global Financial Data tracks bull and bear markets in over 100 stock markets. GFD has over 400 years of data to analyze when bull and bear markets began and ended and the number of market tops and bottoms that have occurred each year worldwide. GFD defines a bear market as a 20% decline in the primary market index for each country and a bull market as a 50% increase in the primary market index. A market bottom occurs when the index declines by 20% or more after a 50% increase, and a market top occurs when the market rises by 50% or hits a new high after a 20% decline.
With our coverage, GFD has calculated the timing of bull and bear markets for each country since that country started trading. GFD has created indices for stock markets for each country, and has used data from London and other European exchanges to extend data series for markets back into the 1800s. Market indices for India, Brazil, Mexico, Australia, South Africa and other countries begin in the 1820s and 1830s, long before exchanges opened up in those countries because stocks from those countries traded in London, Paris or Amsterdam.
Most of the data that are used to calculate market tops and bottoms are monthly or daily in frequency. The problem with pure annual data is that a bear market could occur within a single year and bounce back so that annual, end-of-year data would not capture the occurrence of the bear market. This occurred in 2020 when the COVID pandemic caused markets to collapse in February and March of 2020, but markets recovered by the end of the year.
Additions to the Database
GFD has both added a new index detailing the number of markets that GFD covers each year and has extended the coverage of three of the indices covering market tops and bottoms.
The new index provides information on the number of markets that GFD provides calculations on bull and bear markets in each year. Figure 1 shows the number of markets that GFD covers from 1602 until 2022. Starting at one market (Amsterdam) in 1602, by 1800, there were five markets for which data were available; however, the number of markets grew during the 1800s, rising to a dozen by 1825, 20 by 1856 and 33 by 1900. The number of countries peaked at 43 in 1929, but declined after World War II when stock markets were closed by Communist governments. The count fell to 37 in 1946, but grew steadily thereafter. Most of the growth occurred in the 1980s and 1990s when globalization and the fall of communism led to the opening of exchanges throughout the world. There were 52 countries with stock indices in 1980, but 97 by 2000, not far short of the current 106.
Figure 1. Countries With Indices Covered in the GFDatabase
GFD has also extended its calculation of when bull and bear markets occurred back to 1602 when trading began in East India stock on the Amsterdam Stock Exchange. We have calculated the date of the tops and bottoms for every market in the world over the past four centuries. Before 1800, there were five or fewer markets so information on the timing of tops and bottoms is sparse. The data for these series begin in 1800 and continue until 2022. We provide data on both the number of market tops in each year, the number of market bottoms in each year, and the net tops minus bottoms in each year.
Although global markets in the 1900s are well documented, global markets in the 1800s are less well known. No stock market indices were calculated in real time until Dow Jones introduced his averages in 1885, The Banker’s Magazine introduced its UK indices in 1887 and stock market indices for the rest of the world weren’t introduced until after World War I. Daily indices weren’t introduced in many countries until after World War II. Any indices that cover markets before World War I have to be recalculated by collecting data on individual companies and using data on stock prices, dividends, corporate actions and shares outstanding to calculate cap-weighted price and return indices for each country, which GFD has done.
Figure 2. Stock Market Tops by Year, 1800 to 2022.
Figure 2 shows the number of market tops that occurred in each year since 1800. Most people would expect that there were market tops, followed by a bear market, in 1920, 1929, 1937, 1969, 1973, 1980, 1987, 1994, 2000, 2007 and 2018/2020. But when were there market tops in the 1800s? Few people know. The advantage of this indicator is that it allows you to look at markets across the world to understand when markets topped out simultaneously and better understand the coordination between global markets. Of course, markets were not as integrated in the 1800s as they were in the 1900s or 2000s, but the Panics in 1857 and other years spread throughout the world.
The years in which markets topped out in the 1800s were 1825 when there was a crash among South American stocks and bank failures in England, in 1845 when the railroad boom peaked, in 1862 as a result of wars and rising commodity prices, in 1881 when the Union Generale crash occurred in Paris, and in 1889 as the “Long Depression” went into its final phase.
Figure 3. Stock Market Bottoms by Year, 1800 to 2022
Of course, market tops are followed by market bottoms. The time between a market top and bottom can vary from a few months as occurred during the COVID pandemic in 2020 and fifty years as occurred in the United States between 1792 and 1843. In most cases, market declines take one to three years, but the time varies from one case to the next. Over time, the length of market declines has shortened. Many markets hit market tops in 2018 and the 2020 COVID pandemic sent the remainder of the world’s markets into a bear tailspin. Although there were 40 market tops in 2018 and 36 market tops in 2020, there were 84 market bottoms in 2020! One would have thought that this would be the beginning of a multi-year global bull market, but war and inflation in 2022 pushed markets into bear mode two years later.
|
Year |
Tops Minus Bottoms |
Year |
Tops Minus Bottoms |
|
1848 |
-6 |
1825 |
6 |
|
1866/67 |
-7 |
1881 |
8 |
|
1877 |
-7 |
1929 |
17 |
|
1921/22 |
-16 |
1937 |
17 |
|
1932 |
-23 |
1947 |
8 |
|
1940 |
-12 |
1969 |
17 |
|
1949 |
-7 |
1973 |
20 |
|
1970/71 |
-15 |
1980 |
12 |
|
1974 |
-16 |
1987 |
9 |
|
1982 |
-15 |
1994 |
28 |
|
1998 |
-17 |
1997 |
28 |
|
2003 |
-27 |
2000 |
36 |
|
2009 |
-53 |
2007 |
59 |
|
2020 |
-48 |
2015 |
21 |
|
2022 |
-25 |
2018 |
33 |
Table 1. Market Tops Minus Market Bottoms, Selected Years
You can see where there was a significant number of market bottoms in the 1900s, in 1921, 1932, 1940, 1949, 1970/71, 1974, 1982, 1998, 2003, 2009, 2020 and 2022. These are the years that you would expect global markets to hit a significant number of market bottoms. During the 1800s, you had a large number of market bottoms in 1848 during the European revolutions, in 1866/1867 after war in Germany and Austria, and in 1877 after the market crashed in Germany and the United States in 1873. Between 1880 and 1914, there were few market bottoms in any given year. Before World War I, global stock markets were not as integrated as they are today, so stock markets hit their bottoms at different points in time.
Figure 4. Stock Market Tops Minus Stock Market Bottoms, 1800 to 2022
The best way to analyze global bull and bear markets is to combine the number of market tops and bottoms into a single graph that nets out the differences. This information is provided in Figure 4 which shows the number of market tops minus the number of market bottoms in each year. A high positive number shows a significant number of market tops and a high negative number shows a significant number of market bottoms. In a year such as 1987, there were 35 market tops, but 26 market bottoms so the net amount was only 9, significantly below the observations for 1929, 1937, 1969, 1973 or 1980.
During the past 30 years, you can see the market tops and bottoms whipsawing back and forth with a notable number of tops in 1994, 1997, 2000, 2007, 2015, 2018 and 2021 and a notable number of bottoms in 1995, 2001, 2003, 2009, 2016 and 2020. Not only has the number of markets covered increased, but markets react in unison more quickly than was true in the past. During 2020, equity markets reacted to the COVID epidemic together, dropping and recovering together. During 2022, inflation caused central banks to raise interest rates across the globe dramatically causing large losses to fixed-income investors throughout the developed world. Just as stock markets moved in tandem in 2020, interest rates moved in tandem in 2022.
Conclusion
There is little reason to expect that individual stock and bond markets will go their own way in the near future. Over time, markets have become more integrated and more coordinated as technology has linked global markets together. Central banks coordinate their responses to changes in inflation and financial crises, and the integration of global equity markets means that markets react similarly whenever any real-world event occurs. Covid provided a perfect example of how one event can impact markets throughout the world simultaneously.
The frequency of bull and bear markets has increased over time. The 1900s had more bull and bear markets than the 1800s, and the 2000s have had more bull and bear markets than the 1900s. The length of bear markets has shortened and the time between market tops and bottoms has shrunk. The reason for this is that global markets have become more integrated and information can be transmitted instantaneously around the world. Before the transatlantic cable was installed it would take over a week for news to travel between Europe and America. The telegraph was replaced by the telephone and today television keeps investors updated in real time. Anything that happens in one part of the world is instantly known on the other side of the planet. Markets will only become more integrated over time, and the time between market tops and bottoms will shrink. The 220 years of evidence we have collected on global market tops and bottoms only reinforces that fact.
