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MARKET COMMENT
By
Carburton Street, London -- For many investors, the recent downturn in global stock markets will be their first experience of a bear market. A bear market is said to occur when a group of shares are falling. But more formally, it is defined as a decline of around 20% in the value of one of the key indices that is used to gauge stock market performance. In the UK, the FTSE 100 Index or the FTSE All-Share Index would be a good example of a key index. At the other end of the spectrum, a bull market occurs when shares are rising, and we've enjoyed a fairly sustained bull run over the last two decades or so. The last time that the bears made an appearance was back in 1973 and 1974 when equities fell by a third and then a half in two successive years. The catalyst at that time was the oil shock, which was brought about when the Organisation of Oil Producing Countries (OPEC) squeezed oil supplies and crude oil prices surged fourfold in just a matter of months. Thankfully the two-year bear run ended and those who stayed invested went on to capitalise on a 150% surge in equity values the very next year. We are now in the vice-like grip of another bear market. From its peak value of 3266 reached in September last year, the FTSE All-Share Index has declined just over 20% to 2596. It is anyone's guess how much longer it will last. We can't blame the oil producers this time for the stock market decline; opinions differ as to the cause of this global recession, which has in turn brought about the decline in stock markets. But the solution is the same today as it was then. Central banks are continuing to cut interest rates and this easing of monetary policy should help money to start flowing through the veins of corporate balance sheets. Last night, Cisco Systems (Nasdaq: CSCO) provided investors with the first glimmer of hope that its own market for networking equipment was starting to stabilise. But one swallow does not make a summer, and it might be a tad premature to call an end to this bear market. But just as bears never pre-announce their entrance, nor do they notify you in advance when they are about to take their leave. The secret, then, is to stay invested, or if you haven't invested already then start now.