MARKET COMMENT
Unhappy 3rd Birthday To The Bear Market

By Cliff D'Arcy
March 7, 2003

Many investors trace the beginning of the current bear market - the longest in the post-Second World War era - to three years ago this week. There's no question that UK investors have suffered a great deal since 2000, nevertheless, it's worth remembering that in the whole of the 20th century, no bear market lasted more than four years....

During 1999 and 2000, investors in TMT (technology, media and telecom) stocks were running blindfold up the escalator, chasing companies with even a whiff of the Internet in their business plans. Valuations in these sectors soared, pushing the UK techMARK and the US NASDAQ indices to record levels every week. Index rises of around 5% a day were not unusual as investors chased these "new economy" wonder shares.

Ultimately, on Monday, 6 March 2000, the techMARK index peaked at 5,743.3. It then fell and rose sharply that week before closing at 5,719 on Friday, 10 March 2000. Sadly, it's all been downhill since then. Even by the end of that fateful month, the techMARK had plunged by almost a quarter, and it's been falling hard ever since.

The bad news for UK investors is that the techMARK has fallen longer and harder than its US equivalent. Having peaked at 5,048.62 on 10 March 2000, the NASDAQ had fallen to 1,303 at yesterday's close. Over the last three years, it's dived by almost three-quarters. Compare this to the techMARK: from the peak to yesterday's close, the index is down to a tenth of its peak value, having fallen a dizzying 90%.

What's more, the major indices also haven't fared too well. The FTSE 100, which peaked at 6,930.2 on 31 December 1999, had fallen by about 5% by 10 March 2000. It's fallen another 46.5% since then.

Again, the Footsie's bigger Wall Street cousin, the Dow Jones Industrial Average, has fared considerably better. The DJIA peaked at a whopping 11,722.98 on 14 January 2000. By 10 March it had fallen 15%. Yesterday, it slipped to 7,673.99, down over a third from its peak.

So, what does this tell us? Well, unsurprisingly, over the last three years, most shares both sides of the Atlantic have fared poorly, with many performing spectacularly badly. Even investors that have been drip-feeding money each month into an index tracker or managed fund have lost out in almost every month since March 2000.

However, one possible reason for the US market holding up better than the UK's is that shares are far more widely held across the Big Pond. Perhaps we Brits have lost our faith in the long-term performance of shares, while the "cult of the equity" is still alive, if shaky, in the US.

Regardless of the dismal performance of the markets over the last three years, shares do go up over the long term. By saving money each month in a low-cost index tracker, you can take advantage of rising prices when the markets finally turn the corner.

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