Global Markets in 2024

Global Markets in 2024

Bryan Taylor, Chief Economist, Global Financial Data

 

Global Financial Data tracks bull and bear markets in over 100 stock markets.  GFD has over 400 years of data that can be used 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 or a move to a new high after a 20% decline.  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.

Global bull or bear markets occur when market tops and bottoms occur in different countries simultaneously. If bull and bear markets occurred randomly in different countries, there would be no global bull or bear markets; however, since markets are interdependent, bull and bear markets occur globally at the same time.  During the 1800s, global markets were not as integrated as today.  The market conditions that led to a bear market occurring in the United States, as in 1864, occurred independently of bear markets in Europe.  Consequently, as measured in British Pounds, there were no global bear markets between 1848 and 1912.  There were bear markets in every country in the world during those 64 years, but the bear markets were not coordinated enough on an international basis to cause a global bear market to occur.

There were five global bear markets in the 1700s, but only two global bear markets during the 1800s, resulting from the Napoleonic Wars (1809-1812) and from the collapse of the Railroad Bubble and 1848 Revolutions (1845-1848).  During the 1900s, on the other hand, there were at least ten global bear markets.  With the current century not even one-quarter over, there have already been six global bear markets.  The occurrence of global bear markets has gone from two in the 1800s to ten in the 1900s and six already in the 2000s. This shows that financial markets have become more integrated over time. Having a good understanding of how bear markets are interconnected is becoming increasingly important to investors.

Because global markets are more integrated, bear markets are becoming more frequent and require closer monitoring than ever before. For this reason, GFD is introducing a new indicator that can be used to track global bear markets.  We have done research on each stock market since it was founded to count the occurrences of market tops and market bottoms in each year.  We sum up the number of markets that had either a bear bottom or a bull top and use this as an indicator of when global bull and bear markets occur.

Global Bull and Bear Markets

Bear markets occur over a shorter period of time than bull markets with higher volatility. Under normal circumstances, stock markets appreciate because the economy grows.  A bull market can be seen as the interim between bear markets.  However, it may take several years for a market to make the 50% recovery or new high that signifies a bull market. Some analysts use a 20% increase to signify a new bull market, but this is too small of a gain to indicate a bull market. In 1966, the Dow Jones Industrial Average (DJIA) declined by 23% between February and August, then rallied back by 28% until December 1968, but didn’t overtake the previous high.  The DJIA then declined by 36% until May 1970.  Was this one long bear market or two bear markets?  Was the market building a top, or initiating a new decline?  Many European markets did something similar between 2018 and 2020.

This is what made the 1929-1933 bear market crash in the US or the decline in Japan’s stock market between 1989 and 2012 so memorable. There was a decline, recovery, another decline and another recovery for years.  Investors would expect that as the market bounced back the bear was gone, but the bear only reappeared and drove prices further down, ultimately declining by over 80% in both cases. By combining a count of the number of bear bottoms and bull tops with an analysis of global stock market indicators we can reinforce our assessment of when a global bear market occurred.  It also improves our understanding of bear markets. 

How significant the market bottom is and how strong the subsequent bull market will be depend upon the number of markets that hit a bottom and bounce back. Whether in 2024, stock markets will continue the bear market that began in 2022 or continue the bull market that began in 2023 is important to know. Global markets are integrated, and bear markets often occur across global markets simultaneously. Developed markets are more integrated than emerging or frontier markets so there should be a greater correlation between developed markets than frontier markets. This was seen in the Covid bear market of 2020. Global markets bottomed out within days of each other, started to rise, and never looked back. Since bear markets usually last a year or two and bull markets can last five years or more, a significant number of bear market bottoms globally give investors confidence that a new bull market has begun and that they can reenter the market and invest for several years to come.

By differentiating between developed, emerging and frontier markets we can better understand how markets affect each other.  If markets are becoming more integrated, the number of markets hitting tops or bottoms in any given year should increase.  If developed markets are more integrated than frontier markets, their market tops and bottoms should occur simultaneously more frequently. There should be greater coordination of tops and bottoms in the 2000s than in the 1900s or the 1800s. Of the 50 developed and emerging markets that we track, 48 hit a bear bottom in 2020; however, 22 had hit a bull market top in 2018, 4 in 2019 and 22 in 2020.  The 2020 bear market was the most coordinated bear market in history.  By contrast, 36 countries hit market tops in 2007 and 13 in 2008 with 19 markets hitting bear market bottoms in 2008 and 28 in 2009.   The bear market in 2007-2009 occurred between October 2007 and March 2009 while the bear market in 2018-2020 occurred between January 2018 and March 2020.

Bear Markets in Different Financial Markets

              A bear market is defined as a 20% decline in a major index.  But bear markets differ in the size and length of their decline.  A bear market may decline by 21% or 91%.  It may last for a few months or a few decades.  There are several factors that can differentiate bear markets. 

              There is a natural bias for stock markets to rise.  First, the economy grows over time, so this is going to provide a bullish bias to the stock market.  Second, during the past 100 years, most countries have suffered inflation.  The higher the inflation rate, the more the nominal value stocks will increase, and the greater will be the bias toward a bull market.  These are two reasons why bear markets are smaller and shorter than bull markets.

              Bond markets behave differently from stock markets. Bonds will be redeemed at par upon maturity. Stocks have no redemption value.  This fact limits the fluctuations in the price of bonds and reduces the likelihood that a bond will decline by more than 20 percent.  There are two factors that can cause bond prices to decline: inflation and default.  Inflation will cause the nominal yield on the bond to rise because investors must be compensated for higher inflation to maintain a real return, causing the price of the bond to decline.  A 20 percent change in the price of the bond will cause a 25 percent change in the yield of the bond.  But over time as the bond moves closer to maturity, the bond will slowly return to par. Investors in Germany in 1923 during the hyperinflation got wiped out because of inflation.

On the other hand, if the bond goes into default, the price of the bond will head toward zero unless there is reason to believe that the bond will eventually be redeemed.  Governments rarely completely default on bonds.  In most cases, new bonds are offered in exchange for the old bonds.  Typically, the new bonds will pay a lower interest rate and/or bondholders will receive fewer bonds in exchange for the bonds that they previously owned.

              Although bear markets in the stock market may last for a few months or a few years, bear markets in bonds can last for over a decade because inflation gradually builds up over time. Bear markets in stocks occur because of concerns over the profitability of companies and the available free cash flow to investors.  The price of U.S. bonds gradually declined between 1900 and 1920 and again between 1962 and 1981.  Then the price of bonds gradually improved between 1920 and 1945 and between 1981 and 2020.  Bear markets in bonds are driven by central bank policy and inflation more than anything else.

              Foreign exchange markets also behave differently. There is no reason why foreign exchange must increase in value. Cross rates between currencies are relative, so a bull market in one currency creates a bear market in the other currency.  Generally speaking, most currencies decline in value relative to the U.S. dollar over time, both because the United States has lower inflation than most countries and because the Dollar is the global reserve currency. Between 1973 and 1981, the U.S. Dollar was in a bear market compared to most currencies, but between 1981 and 1986 enjoyed a strong bull market.  If exchange rates are fixed, currencies might avoid a bear market for decades. 

              Commodity markets suffer bull and bear markets as well. Because of inflation, there is a natural tendency for commodities to increase in price; however, commodities can face long-term bear markets or stabilize within a price range for long periods of time. Gold enjoyed a strong bull market between 1968 and 1980, a bear market between 1980 and 2000, and another bull market between 2000 and 2010, after which it suffered a five-year bear market.  Similar patterns can be found in oil, copper, wheat and other commodities.

Types of Bear Markets

              There are a number of factors we need to look at to analyze the nature of bull and bear markets.

First, is the bear market endogenous or exogenous?  Was it caused by factors internal to the country or external to the country?  The 1929 stock market crash was caused, in part, by an overvaluation of stocks as was the crash in stocks in 1720.  The Covid Bear Market of 2020, on the other hand, was caused by the unknown impact of Covid on the global economy.  The decline in stock markets in 1914 was caused by the unexpected outbreak of World War I.  In many cases, it is both endogenous and exogenous factors that contribute to a bear market.  The 2000-2003 bear market in the United States was caused not only by the overvaluation of Internet shares in 1999, but the terrorist attacks of 9/11 and the problems caused by the collapse of Enron and other companies in 2002. A bear market that is both endogenous and exogenous is usually larger than one that is only endogenous or exogenous.

The Covid bear market of 2020 was an international phenomenon.  It affected every country in the world simultaneously.  The only major country that didn’t suffer a bear market as a result of Covid was China. On the other hand, Greece’s bear market in 2014 or Iceland’s bear market in 2007 was primarily caused by domestic factors.

Second, is there a single cause that contributed to the bear market or multiple causes?  Using the example previously provided, the Covid Bear Market of 2020 had a single cause: Covid.  The 2000-2003 bear market was caused by multiple factors.  The 1929-1932 Bear Market in the United States was caused by three years of decline in the economy in the United States, a reduction in the money supply and the closure of thousands of banks, the collapse of the Credit-Anstalt in Austria, etc.

Third, is the bear market a nominal bear market or a real bear market? You have to allow for the impact of inflation. The collapse in the German stock market between 1920 and 1923 of over 90 percent occurred after adjusting for inflation.  Germany suffered hyperinflation, and in nominal terms, the market was up by a factor of over one trillion, but after adjusting for inflation, or measured in U.S. Dollars, the market declined by over 90 percent.

Fourth, was there a difference between the price index and the return index? During the 1700s and 1800s, 90 percent of the return to shareholders came in the form of dividends. Nominal prices showed little appreciation.  Consequently, the British stock market measured purely in the form of stock prices declined between 1720 and 1762 while the U.S. stock market declined between 1792 and 1843.  However, if you look at the same stock markets on a total return basis, returns to the British and American stock markets were positive during those periods of time.

Fifth, is the bear market an international phenomenon or a domestic phenomenon?  The Covid bear market of 2020 was an international phenomenon.  It affected every country in the world simultaneously.  The only major country that didn’t suffer a bear market as a result of Covid was China. On the other hand, Greece’s bear market in 2014 or Iceland’s bear market in 2007 was primarily caused by domestic factors.

Every bear market should be analyzed in terms of these factors. 

Developed, Emerging and Frontier Markets

              GFD’s stock market data covers 108 countries. We have divided global markets into three types with 25 Developed Markets, 25 Emerging Markets and 58 Frontier Markets. We treat a country that is developed today as being developed since its founding, even if in the past it might have qualified as an emerging or frontier market. Israel is currently classified as a developed market so all of the bull and bear markets in Israel since 1948 are included, even though Israel was, at best, an emerging market until the 2000s. Israel suffered high inflation in the 1980s which limited the development of its capital markets.  Similarly, Russia is currently an emerging market, even though it would have qualified as a developed market before the St. Petersburg stock exchange was closed during the Russian Revolution in 1917. 

              The 25 Developed markets that GFD follows with the years when GFD starts tracking bull and bear markets are provided in the table below.

Country	Starts	Country	Starts	Country	Starts
Netherlands	1602	Belgium	1831	Finland	1912
United Kingdom	1692	Spain	1833	Norway	1914
France	1718	Germany	1835	Luxembourg	1929
Denmark	1759	New Zealand	1862	Portugal	1931
United States	1791	Sweden	1870	Israel	1949
Ireland	1793	Japan	1878	Singapore	1961
Austria	1817	Italy	1888	Hong Kong	1962
Australia	1826	Switzerland	1899	Korea	1962
Canada	1829

Emerging market histories are extended by tracking stocks that traded in London, Paris and Berlin before domestic stock markets were founded.  Data for India begins in 1685 because that is when the record of shares of the British East India Co. trading in London begins. The 25 Emerging Market countries include:

Country	Starts	No Data		Country	Starts	No Data
India	1685			Poland	1921	1939-1994
Mexico	1824			Peru	1926
Brazil	1826			Colombia	1927
South Africa	1834			Greece	1929	1940-1952
Chile	1855			Philippines	1952
Egypt	1856	1969-1992		Pakistan	1960
Turkey	1856	1930-1986		Taiwan	1967
Hungary	1863	1948-1991		Kuwait	1973	1987-1993
Russia	1865	1918-1993		Thailand	1975
Argentina	1869			Saudi Arabia	1985
China	1871	1941-1989		United Arab Emirates	1987
Indonesia	1872	1939-1977		Qatar	1995
Malaysia	1889

The remaining frontier markets include:

Country	Starts	No Data	Country	Starts
Czech Republic	1836	1945-1993	Slovakia	1993
Romania	1872	1947-1997	Barbados	1993
Nigeria	1887	1971-1985	Ecuador	1993
Uruguay	1925		Namibia	1993
Serbia/Yugoslavia	1927	1939-2004	Paraguay	1993
Venezuela	1929		Slovenia	1993
Vietnam	1938	1953-2000	Costa Rica	1994
Lebanon	1948	1959-1996	Nepal	1994
Sri Lanka	1952	1974-1985	Estonia	1995
Kenya	1964		Kyrgyzstan	1995
Zimbabwe	1964		Mongolia	1995
Jamaica	1969		Latvia	1996
Jordan	1978		Lithuania	1996
Bangladesh	1979		Malawi	1996
Morocco	1979		Malta	1996
Cote d'Ivoire	1982		Zambia	1996
Cyprus	1983		Croatia	1997
Trinidad & Tobago	1983		Palestine	1997
Botswana	1989		Ukraine	1998
Mauritius	1989		Kazakhstan	2000
Bahrain	1990		Bosnia	2002
Iran	1990		Macedonia	2002
Tunisia	1990		El Salvador	2003
Ghana	1990		Montenegro	2003
Oman	1991		Iraq	2004
Bermuda	1991		Tanzania	2006
Iceland	1992		Uganda	2006
Panama	1992		Syria	2009
Bulgaria	1993

Figure 1 illustrates the number of developed, emerging and frontier markets by year.  The decline in the number of emerging markets after World War II reflects the closing of stock markets in countries that became Communist.

Figure 1.  Number of Developed, Emerging and Frontier Markets in the GFDatabase, 1602 to 2023

The reason for dividing markets into these three categories is because the correlation between markets is much greater between developed markets than between emerging markets or frontier markets.  Consequently, we can analyze the ebb and flow of bull and markets more easily by focusing on developed markets than on frontier markets. Developed markets also have a larger capitalization than emerging and frontier markets. Nevertheless, analyzing the results for all markets provides information that analyzing a limited number of markets would not provide.

If you calculate a World Index to determine when the bull and bear markets begin and end globally, you will find that because the bull market tops and bear market bottoms occur at different points in time for each country, global bull and bear markets differ from those in individual countries.  During the 1800s, GFD’s World Index only had two bear market bottoms, but if you look at individual countries, each country endured five or more bear markets during the 19^th Century. 

Table 1 provides a list of the start and end dates for global bear markets since 1600 and the percentage change that occurred in each global bull and bear market. Bear markets in the 1600s represent only the performance of the Dutch East India Company. After 1685, the number of countries begins expanding until it reaches 25 in 1962.

Month	Bull Rise	Month	Bear Decline	Cause
04/30/1607	65.15	07/31/1607	-31.76	Spanish State Bankruptcy
06/30/1614	82.24	12/31/1617	-45.39	Failure of Genoese Banks
11/30/1622	65.34	11/08/1625	-21.12	30-years War
08/31/1649	301.56	08/31/1665	-44.37	30-years War
08/31/1671	68.63	06/30/1672	-47.30	Second Anglo-Dutch War
02/28/1688	93.26	10/09/1696	-46.52	Third Anglo-Dutch War
04/30/1700	130.87	02/28/1701	-39.79	Nine Years War
04/29/1704	60.55	03/31/1712	-38.35	Death of Charles II
12/31/1719	721.74	1/31/1762	-90.17	War of the Spanish Succession
05/31/1768	85.53	10/31/1784	-37.35	South Sea Bubble
03/31/1792	74.04	05/31/1797	-41.37	French Revolution
11/30/1809	81.63	07/31/1812	-35.08	Napoleonic War
8/31/1845	103.86	11/30/1848	-32.31	Railroad Mania, Revolutions
9/30/1912	128.61	7/31/1921	-37.82	World War I
9/30/1929	211.61	6/30/1932	-75.56	Great Depression
2/28/1937	198.25	5/31/1940	-39.65	1937 Recession
5/31/1946	86.43	9/30/1949	-25.57	Post WWII Recession
1/31/1969	525.23	6/30/1970	-24.07	Vietnam
3/31/1973	76.80	9/30/1974	-42.34	OPEC
4/27/1981	131.62	8/12/1982	-26.56	Second Oil Crisis
8/27/1987	318.87	10/26/1987	-23.70	1987 Crash
1/4/1990	50.92	9/28/1990	-25.90	Iraq War
7/20/1998	170.11	10/8/1998	-20.05	Asian Crisis
3/27/2000	58.49	10/9/2002	-51.41	Internet Bubble, 9/11
10/31/2007	139.07	3/9/2009	-59.07	Financial Recession
5/2/2011	102.13	10/3/2011	-22.93	US Debt Crisis
1/26/2018	109.65	12/25/2018	-20.17	Euro Crisis
2/12/2020	35.63	3/23/2020	-34.20	Covid
1/4/2022	102.74	10/12/2022	-27.11	Rising Interest Rates

Table 1.  Global Bull and Bear Markets, 1602 to 2023

Figure 2 shows the number of market tops that occurred in developed markets between 1800 and 2023 and Figure 3 shows the number of market bottoms in each year between 1800 and 2023. If global markets are integrated, most markets should hit a top or bottom simultaneously, while if the market tops and bottoms in individual markets are random, there should be no spikes in the number of bull market tops or bear market bottoms. More market tops show the end of a bull market, and more market bottoms show the end of a bear market.

As the graph illustrates, bull tops and bear bottoms are not random. There are spikes where multiple markets had a top or a bottom simultaneously.  Moreover, the correlation between markets has increased over time.  No more than four developed markets had simultaneous market tops in the 1800s, but the number of tops increased during the 1900s and hit 24 in 2007. The market tops in 1920, 1929, 1937, 1969, 1973, 1987, 2007 etc. are clearly visible while the market bottoms in 1921, 1932, 1940, 1974, 1982, 1998, 2003, 2009, 2020, etc. are visible as well in Figure 3.  There were fewer market tops and bottoms in the 1950s and 1960 as the bull market roared ahead.

Figure 2. Market Tops by Year in Developed Markets, 1800 to 2023

After the market peaked in 2000, it took three years of bear market bottoms for global markets to start moving forward again.  2007 had the largest number of bull market peaks until then followed by the largest number of bear market bottoms; however, the number of market bottoms in 2020 when Covid struck exceeded the number of bear market bottoms in 2009. This shows that the degree of integration of global equity markets has increased over time.

Figure 3.  Market Bottoms by Year in Developed Markets, 1800 to 2023

Between 2009 and 2020, the U.S. Stock market rose dramatically while other global stock markets treaded water.  While U.S. Stocks, especially communication and information technology stocks, did well during the past decade, Emerging Markets and much of Europe failed to exceed their 2008 highs. This is reflected in the up and down uncertainty of market tops and bottoms.  There were three net tops in the world’s stock markets during the past decade in 2015, 2018 and 2021 and three market bottoms in 2012, 2016 and 2020.  How long before global markets hit another market top?

Global Bear Markets in the Twentieth and Twenty-First Centuries

              There are three primary indices for Global Bear Markets that GFD analyzes.  This includes the Developed World Index, Developed World excluding North America, and Emerging Markets.   The Developed World Index is the broadest measure of global stock markets; however, during most of the twentieth century, the United States represented the majority of the investible stocks in the world.  Moreover, Canada strongly correlates with the United States.  By excluding North America, you focus on Europe and Japan which generates quite different results from the United States.  Emerging markets produce different results from developed markets.  Because developed markets represent ninety percent of global capitalization, the All-World Index which includes both developed and emerging markets differs little from the Developed World Index.

Figure 4. Market Bottoms by Year in All Markets, 1800 to 2023

              We can combine the Bull-Bear indicators with GFD’s designation of financial eras to better understand the behavior of financial markets.  Figure 4 illustrates the number of market bottoms for all of the countries in the world and Figure 5 illustrates the market tops by year in all markets in the world. GFD has broken the period since 1900 into eight financial eras: The Gold Standard (1893-1914), World War I (1915-1929), the Depression and World War II (1930-1945), Bretton Woods (1946-1968), Stagflation (1969-1981), Globalization (1982-1999), Quantitative Easing (2000-2019), and Deglobalization (2020-).

              Each one of these eras began with either a significant bull market top (1914, 1929, 1968, 1999, 2020), bear market bottom (1981, 2020), or important non-economic event (1914, 1945). Each era differed from the previous era in significant ways, in terms of politics and economics, as well as returns to stocks and bonds. We can combine these eras with the data we have collected on bull market tops and bear market bottoms to better understand the behavior of markets.  It should be noted that the number of market tops and bottoms has increased over time.  There was one major market bottom in each of the first four eras, three during the periods of Stagflation and Globalization, four during Quantitative Easing, and already two during the period of Deglobalization.

Figure 5. Market Tops by Year in All Markets, 1800 to 2023

 

              The last time global bear markets occurred this close together was in 1987 and 1990.  This period was followed by eight years of spectacular growth in the global economy.  In both 1987 and 2020, there were sudden shocks to financial markets which the global economy was able to quickly pull out of.  In 1990 and 2022, there were wars which triggered declines in global market prices. However, the 1990 bear market was followed by a bull market that lasted almost a decade.  The bull market was driven by the strong performance in technology stocks. Debt crises in Asia and Russia were quickly overcome by the market since most of the effects of these debt crises were local and did not affect the global economy.

The Outlook for 2024

              Today there is concern that conflict in Ukraine, the Middle East and possibly Taiwan could slow growth in the global economy.  Nations are focusing more on producing goods domestically rather than relying on international trade, which could further contribute to an economic slowdown.  Elections in 2024 will occur in many of the world’s major economies, including the United States, India, Russia, and Taiwan.  Uncertain outcomes in these elections could further slow growth.  Artificial Intelligence could further disrupt the global economy or bring growth, but no one knows.

              Although stock markets are currently at a high valuation, markets are recovering from two bear markets in 2020 and 2022.  It appears that global bear markets are becoming more frequent and occur at closer intervals.  Although three global bear markets have never occurred within a single decade, the occurrence of bear markets in 2020 and 2022 makes it more likely that three global bear markets could occur in the 2020s.  Although current factors favor a multi-year bull market, whether this bull market can continue for the rest of the decade is uncertain. 

Our prediction is that the bull market will continue in developed markets in 2024; however, some markets, such as China, will continue the bear market that they are currently in during 2024.  The S&P 500 has already broken through 5000 for the first time in its history, and it looks like it will continue to rally in 2024.  Bond yields appear to have peaked in October of 2023, and it seems unlikely that the 10-year bond yield in the United States will rise much above 5% in the current year.  In short, although there are a lot of potential problems that could occur in 2024, we believe the signs for global financial markets are positive for 2024.