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 19th 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.