The Century of War: Bear Markets in the 1700s
GFD has calculated a global index of stocks that begins in 1602 and continues until the present. With this index, we can track the changes in global stock markets over the past 400 years. In particular, we can determine when bear markets occurred and study the causes of those bear markets.And
The number of stocks used in the index has grown over time. Data from the 1600s is based upon the data for only one stock, the Dutch West India Co., so any analysis of bear markets during the seventeenth century would only look at the behavior of one stock, not of the global market. There is virtually no data from Amsterdam between 1692 and 1720, and data from Paris begins in 1718. Between 1692 and 1718, almost all of the data comes from London. For most of the 1700s, the index relies upon six companies from London, Paris and Amsterdam, and the analysis below relies upon the behavior of those companies. Only in the 1800s did the number of stock markets and companies increase to hundreds of companies.
We have already shown that you can divide up the history of equity markets into four eras: the period of Mercantilism (1600-1799) during which a few international trade companies dominated markets, Free Trade (1800-1914) during which railroads and other industries allowed stock markets to increase in size dramatically, Regulation (1914-1981) during which government regulation and nationalizations restricted the growth of global stock markets, and Globalization (1981-) during which markets once again became a source of capital for global corporations.
By number, there were five global bear markets in the 1700s, four bear markets in the 1800s, seven bear markets in the 1900s and so far, two bear markets in the 2000s. This gives us a total of 18 bear markets over the past 417 Years. GFD defines a bear market as a 20% decline in the price of stocks following a bull market in which prices increase by at least 50%. The index is in British Pounds until 1792 and in U.S. Dollars after 1792.
The worst bear market in global history was the crash that followed the Mississippi/South Sea Bubble in 1719 during which the world index fell 89%. The second worst decline in the history of the stock market was the 1929 crash in which the world index fell 80%. Besides these two bear markets, there have been only two cases where the global market lost more than half of its value. This occurred during the 1846-1848 bear market and during the 2007-2009 financial crash. Will this volatility continue?
Bear Markets in the 1700s
There were five bear markets in the 1700s, in 1700-1701 (a decline of 36%), in 1704-1712 (a decline of 40%), 1719-1762 (a decline of 89%), 1768-1784 (a decline of 37%, and between 1792 and 1797 (a decline of 41%). There was also a bear market between 1688 and 1696 during which the market declined 46%. What caused each of these bear markets?
The Nine Years’ War Bear Market
The first two bear markets are illustrated in Figure 1 which looks at the World Index between 1686 and 1705. The four bear markets between 1688 and 1720 were driven by the two European wars between France and the Allies. The Nine Years’ War occurred between 1688 and 1697 and the War of the Spanish Succession occurred between 1701 and 1714....MUCH MORE
A Century of Peace: Bear Markets in the 1800s
GFD has calculated a global index of stocks that begins in 1602 and continues until the present. With this index, we can track the changes in global stock markets over the past 400 years, determine when bear markets occurred and study the causes of those bear markets.
We have already shown that you can divide up the history of equity markets into four eras: the period of Mercantilism (1600-1799) during which a few international trade companies dominated stock exchanges, Free Trade (1800-1914) during which railroads, finance and other industries grew in size, Regulation (1914-1981) during which government regulation and nationalizations restricted the growth of global stock markets, and Globalization (1981-) during which markets once again became a source of capital for global corporations.
GFD defines a bear market as a 20% decline in the price of stocks following a bull market in which prices increase by at least 50%. GFD’s World Index measures the behavior of global stocks in British Pounds up until 1914 and U.S. Dollars since then. There were six bear markets in the 1600s, five bear markets in the 1700s, only one real bear market in the 1800s, nine bear markets in the 1900s and so far, two bear markets in the 2000s. This gives us a total of 23 global bear markets over the past 417 years.
Although people are familiar with the bear markets of the 1900s and 2000s, there is almost no research on bear markets in the 1700s and 1800s, primarily because no data has existed to measure these global bear markets. Another blog, “A Century of War: Bear Markets in the 1700s” explored the bear markets that occurred in the 1700s showing how European wars drove the bear markets of that century. The 1800s, on the other hand, were a century of peace. There were no major European wars between the end of the Napoleonic Wars in 1815 and the start of World War I in 1914. This freed up capital to invest in railroad, finance and other companies that dominated financial markets. Between 1815 and 1914, Britain’s government debt declined, but the capitalization of the British stock market grew from $250 million to $15 billion and the capitalization of the United States’ stock markets grew from $50 million to $20 billion.
The question this raises is why were bear markets so rare in the 1800s? Bear markets occur about once a decade. The longest global bear market in history occurred after the collapse of the South Sea Bubble in 1720 and lasted for 42 years. However, the 1800s had two very long bull markets lasting from 1797 until 1845 and from 1848 until 1912. It was the combination of the collapse of the railway mania and the Revolution of 1848 in France that created the only bear market in the 1800s.
Although there were numerous corrections in global stock markets driven by Panics in 1819, 1825, 1837, 1847, 1857, 1866, 1869, 1873, 1882, 1884, 1893 and 1896, global stock markets were not integrated in the same way they were in 1987. Corrections occurred rather than bear markets. A list of the major panics in the 1800s is provided in Table 1.....MUCH MORE
Table 1. Major Panics in the 1800s
Panic Country Cause 1819 United States Speculative Land Deals 1825 Great Britain Collapse of Banks and South American Stocks 1837 United States Bank of the United States Battle 1847 Great Britain Railway Mania and French Revolution 1857 United States Failure of Ohio Life Insurance and Trust 1866 Great Britain Collapse of Overend, Gurney and Co. 1869 United States Black Friday Collapse of Gold Market 1873 USA, Austria Collapse of Jay Cooke & Co., Vienna Stock Market Crash 1882 France Collapse of l’Union Generale 1884 United States Collapse of Grant and Ward and Marine National Bank 1893 USA, Britain Collapse of Baring Brothers, Bank Failures 1896 United States Gold Standard Problems
The 1845 to 1848 bear market is illustrated in Figure 1 which shows the performance of stock indices for the United States (black), France (green), Germany (blue) and the United Kingdom (brown). The largest decline came from stocks in France, but the majority of the capitalization for the index came from stocks in the United Kingdom....