The argument for it being just a correction is centred on the fact that, after the correction in the first quarter, it was only the US market that managed to drive successfully above, and stay above, for more than a few days.
As Mark Twain was reputed to have said: “History doesn’t repeat itself but it often rhymes.”
The run-up in the FAANGs (Facebook, Apple, Amazon, Netflix and Google) stocks in the summer were very much rhyming with events in 1999. At that time we had the technology, media and telecommunications (TMT) mania.
While everybody recalls the TMT rise and fall, many investors forget that at the same time passive investments were all the rage.
Those believing that October was just a correction console themselves that the over exuberance in the summer of this year required a correction for markets to move upwards and onwards.
Even the regulators were jumping on the bandwagon, suggesting that due to their low fees, these should be an investor’s first port of call. In the UK the most tracked index was the FTSE 100.
In November 1999, Vodafone, one of the larger FTSE 100 companies, announced a hostile bid for Mannesmann, a German industrial group. When the deal finally got clearance in February 2000, the combined group became more than 10 per cent of the index.
This caused a problem for index trackers as, in those days, most of them were open ended investment companies and not exchange-traded funds (ETFs), which were not allowed to hold more than 10 per cent in any one company.
They needn’t have worried, the company now represents just 2.5 per cent of the index.
Apart from index tracking mania, the other main similarity was that back then Vodafone represented a company that would ‘take over the world’ and in the summer the same was true of the likes of Apple.
The principles of capitalism, it seems, had been forgotten by the markets. Where there is growth and profit, others will move in.
Those believing that October was just a correction console themselves that the over exuberance in the summer of this year required a correction for markets to move upwards and onwards.
Additionally, many investment houses point out that a bear market requires a recession and the US, which drives markets, shows no sign of a recession imminently. Although many recognise that a slowdown is likely.
