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IBM upstages younger digital rivals

The US stock market technically entered bear territory midway through June when the S&P 500 index slipped to 21 per cent below its most recent peak in January. Legend has it that the use of the term ‘bear’ to denote a market downturn has its roots in the 18th-century trade in bearskins. Middlemen in the trade would sometimes arrange what amounted to a put option on bearskins in anticipation of falling prices, hence the proverbial warning that’s it’s not always a good idea to “sell the bear’s skin before one has caught the bear”.

Grizzly derivatives aside, the FTSE 100 has held up reasonably well by comparison, partly a consequence of the domestic index’s energy weighting, but also because of the ‘blue sky’ valuations ascribed to tech stocks across the pond. Consider that between the initial pandemic sell-off through to last November the Nasdaq index rose by 137 per cent. It has subsequently pulled back by a third, mirrored by a step up in short positions on US information technology stocks.

Curiously enough, bear markets in the post-war period have resulted in an average decline of around 33 per cent from the market’s most recent high. Unfortunately, not all those bear markets have taken place when wider macroeconomic conditions have been so challenging. Investors can take some solace in the knowledge that the average duration of bull markets is around four times longer than that of the average bear market, although we should remember that it was years before indices retraced in the wake of the global financial crisis. Then, as now, the withdrawal of liquidity was a source of consternation for investors.

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