Bull and Bear Markets in Nineteenth Century America

Global Financial Data has produced a daily railroad index for the United States from 1832 to 1903. GFD has linked this index to the Dow Jones Transport Average to provide a continuous daily index covering 187 years of U.S. transport history from 1832 to 2018. With this index, we can conduct precise calculations, both in prices and in time of the bull and bear markets that occurred in the United States between 1832 and today. Until now, calculations of the bull and bear markets in the 1800s were just estimates and guesses, now we can get an exact measurement.

Bulls and Bears

GFD’s Railroad Index chose the 25 top railroads by capitalization and activity in each year to produce a broad index of railroad stocks. We then linked the index to the Dow Jones Railroad Average, which included 20 stocks beginning in 1889, to provide a continuous series of daily data from 1832 to 2018. GFD defines a bull market as having a minimum increase of 50% in the index and a bear market as having a minimum decrease of 20%.

During the 1800s we found five market cycles that met these criteria. The table below provides data for these bull and bear markets in the 1800s.

Bull and Bear Markets in United States Rail Stocks, 1832 to 1900
Event Date Index Change
02/03/1832 15.91
03/26/1836 24.08 51.35
Panic of 1837 04/16/1842 16.62 -30.97
12/20/1852 29.96 80.28
Panic of 1837 10/13/1857 14.79 -50.63
04/12/1864 46.67 215.52
End of Civil War 03/30/1865 31.96 -31.53
07/26/1869 54.65 71.01
Panic of 1873 11/07/1873 40.05 -26.71
07/07/1881 94.32 135.50
Panic of 1893 08/08/1896 41.82 -55.66

Each of these bear markets was driven by specific events that are well known to market historians. The first bear market began with the Panic of 1837 and continued for the next five years, the second included the Panic of 1857, the third occurred as the Civil War wound down in 1864 and 1865, the fourth ended with the Panic of 1873 and the final bear market was the longest in U.S. history and included the Panic of 1893. Four of the bear markets were driven by stock market Panics as economic growth turned to recession and one was driven by concerns over the deflation and economic slowdown that followed the end of the civil war. Let’s look at each in turn.

Panic of 1837

The origins of the Panic of 1837 go back to the veto of the renewal of the charter of the Bank of the United States by Andrew Jackson in 1832. The second Bank of the United States had been established in 1816. After the renewal of its charter was vetoed, the bank spent the period from 1832 to 1836 winding up its operations and moving its deposits to “pet” banks. These banks lent out their newly acquired funds, leading to an expansion in the “western” states and more borrowing by states such as Michigan, Mississippi and others where growth occurred.

The price of land, cotton and slaves rose in the 1830s while money flowed into the United States from the United Kingdom. This led to a reduction in Britain’s monetary reserves, which caused London to raise interest rates to attract money back to the United Kingdom. At the same time, to slow down the western expansion, the Specie Circular of 1836 was passed which required all western lands to be paid for with gold or silver, not with banknotes. This change broke the back of the land market bubble and led banks in New York to suspend specie payments on May 10, 1837. The collapse in stock market prices this caused, known as the Panic of 1837, can be seen in the graph below.

The American economy was in a depression for the next five years. Although the federal government had paid off almost all of its debt, states had issued bonds during the boom. The economy declined and Arkansas, Florida, Louisiana, Michigan and Mississippi all defaulted on their outstanding bonds, ruining the credit reputation of the United States, which withdrew from international money markets until the late 1840s. With higher interest rates in London, money flowed back into the United Kingdom and fed the railroad bubble that climaxed in Britain 1845. The U.S. stock market continued to decline until 1842 as is seen below.

Panic of 1857

When gold was discovered in California in 1848, this set off a chain of events which produced solid economic growth in the United States for the next five years. The price of railroad shares peaked in 1852 as the production of gold began to slow. The market declined until the Panic in October 1854 when there was a run on immigrant banks in New York City. The market bottomed out at 19.96, 33.3% below its peak in December 1852. The market recovered to 25.74 by January 5, 1857, then collapsed down to 14.79 during the Panic of 1857 on October 13, 1857.

The Dred Scott decision was handed down in March 1857, denying Dred Scott’s right to petition the court because he was a slave and not a citizen, invalidating the Missouri Compromise which had forbidden slavery in federal territories. This threatened the continued expansion of railroads in the “west” and railroad stocks continued their decline until July 1, 1857. It became apparent that many railroads which only existed on paper might stay on paper, leading to a collapse in share prices. The impact of the Panic of 1857 is visible below.

The economy began to shrink. The New York branch of the Ohio Life Insurance and Trust Co. suspended payments on liabilities of $7 million because of fraudulent activity at the bank. Many banks had loaned heavily to the railroads and as economic activity declined, railroads failed, threatening the banks that had funded them. A graph of the Ohio Life Insurance and Trust Co. is provided below. Not only is the decline in the price of bank shares during the late 1830s and early 1840s apparent, but the complete collapse in the bank 1857 is clearly visible.

After Ohio Life collapsed, New York was desperate for specie, and the SS Central America, known as the “ship of gold” was scheduled to bring 30,000 pounds of gold, or about $2,000,000 in gold from California to New York City, but the ship sank on its way between Havana and New York on September 9, 1857 adding to the panic that already existed. By the spring of 1858, commercial credit had dried up and the price of wheat sank to new lows. Western expansion came to a halt and the market remained in the doldrums until the Civil War began in 1861.

The Civil War

The Civil War proved to be a boon to the northern economy because of the inflationary growth that occurred. As the table above shows, the railroad index rose 215% between its bottom in October 1857 and its peak in April 1864. Most of the growth occurred between April 1861 when the bombardment of Fort Sumter occurred, marking the beginning of the Civil War, and 1864 when the tide turned against the South.

Both the Federal and Confederate governments went off the gold standard during the war. The Federal government issued huge amounts of debt and National Banks were allowed to issue banknotes after chartering themselves with the federal government. The inflation that resulted was one of the primary drivers of the increases in stock prices during the war.

By April 1864, the victory of the north began to seem inevitable and worries about what would happen once the war was over with and the deflation that would follow began to affect the stock market. The market declined throughout most of 1864 and into early 1865. Interestingly enough, the market bottomed on March 30, 1865, ten days before peace was signed at Appomattox and fifteen days before President Lincoln was assassinated. The final sell-off in March 1864 is visible in the graph below

The Panic of 1873

After the war was over, the Gilded Age of Robber Barons began as the nation rebuilt after the destruction of the Civil War. Railroad construction boomed between 1866 and 1873, but deflation slowly moved gold back toward parity with the paper dollar. The market peaked on July 26, 1869 and as the graph illustrates below, collapsed during Jay Gould and James Fisk’s attempt to corner the gold market. This led to Black Friday on September 24, 1869 when the price of gold crashed. The corner failed, but the economy remained weak.

Railroad stocks continued to decline in price for the rest of 1869 and recovered until March 1872 when the market formed a double top, then slowly declined until August 1873 when it plunged during the Panic of 1873 as can be seen below.

International events contributed to the uncertainty that led to the Panic. The Franco-Prussian War of 1870-1871 led to economic dislocation in Europe, there were devastating fires in Chicago (1871) and Boston (1872) and financial failures in Vienna in 1873. Germany moved to a gold standard in 1871. In 1873, the Coinage Act of 1873, also known as the “Crime of 1873” was passed by Congress which ended the purchase of silver by the United States government at statutory prices and effectively moved the American economy onto a gold standard.

When Jay Cooke and Co. was unable to market Northern Pacific Railroad bonds in September 1873, Jay Cooke declared bankruptcy on September 18. Henry Clews, as well as a number of other firms, also fell into bankruptcy and the Panic of 1873 spread throughout the market. The Panic became so severe that the New York Stock Exchange closed down for 10 days starting on September 20. Only the closure of the NYSE at the beginning of World War I in 1914 was longer than the closure of 1873. The railroad average fell from 51 at the beginning of September to 40 by early November. In those intervening months, 55 railroads declared bankruptcy and by September 1874 another 60 railroads had failed.

The Longest Bear Market in US History

The market recovered rapidly from the Panic of 1873 and moved steadily upward until July 1881 by which time the market was 135% above the lows of 1873. But the 1880s and 1890s were a difficult time in the American economy. Between 1881 and 1896, the United States went through the longest bear market in its history.

The first problem the market ran into was the Panic of 1884 when the failures of Grant and Ward and the Marine National Bank of New York pushed stocks into a bear market. There was a slight recovery until 1887, but then the decline resumed until the Panic of 1893. The Dow Jones Railroad Average was at 70 in February 1893, but fell to 55.91 on July 1, then collapsed to 45 by the end of July 1893. The market rallied from there, but fell again during 1896, reaching a new low of 41.82 on August 8, 1896. Between 1881 and 1896, the stock market lost over half of its value as is illustrated below. Beginning in 1896, the stock market staged a rapid recovery, moving up to levels not seen in 15 years. The bull was back.


By 1896, the 15-year bear market was over, and the market moved steadily upward for the rest of the century. The data on the railroad index clearly show the impact of economic growth and decline during the 70 years that railroad stocks were traded in the United States in the 1800s. Historians were well aware of the impact of the financial panics of the 1800s on the stock market, but until now, these changes could not be accurately measured, both by date and by scale. The creation of a daily index that goes back to 1832 has enabled us to study the stock market in the 1800s with a degree of detail never before possible. The Financial Panic of 2008 was similar to the Panics of 1837, 1853, 1869, 1873 and 1893. Understanding the Panics of the 1800s can help us to prepare for the Panics of the 2000s.