Betfair Official Blog

Get out while you can!

Daily View - 9th July 2008

BEAR MARKET! BEAR MARKET! Run for the hills! So yesterday we finally entered "official" bear market territory and it's hard to believe that people have been so slow to accept that so far this year the equity markets have been trading with all the hallmarks of a bear market. It's true to say that not all sectors have been out of favour (energy and mining) but even now there are doubts over these stocks as their share prices have snapped back from their highs. If we see further declines in these sectors, and a great deal of that will be down to whether oil and precious metal prices fall from their highs, then indices will struggle severely to recover the ground they've lost for a few years to come.

Bear markets are distinguished by their lifetime as well as how low they go and when you look at the last bear market we endured, which started in 2000, it lasted a good three years. So if the credit crunch from a year ago was the trigger (which seems most likely since bank stocks started to tumble then), we could be looking at depressed stock prices until the end of the decade.

This morning we have a bounce from indices after Wall Street stocks rebounded fiercely and at one stage last nigh we were calling the FTSE 100 as high as 5520 last night. It often seems to be the case that once the headlines spell doom and gloom for everyone that the following day the markets rebuff all the comments and everyone wonders what the fuss is about, but be under no impression that a rally here or a rally there means we're out of the woods. In March this year the markets tried to recover and that ended up as a cat that wasn't even born. Clients remain on the short side, selling into this morning's strength and this will probably remain the case if indices show anymore strength.

So what's going to stop the rot? The last bear market ended with an exceptionally contrarious trigger which was when the US officially announced the invasion of Iraq. It often takes these sort of events to mark a turning point in the market and with the advent of the US reporting season, there are many investors hoping that this may induce the bottom, if not the initiation of a recovery. At least Alcoa didn't come out with any disastrous news last night as they mark the commencement of the reporting season.

Markets this morning are higher and we're back 5500 at the moment after Asian stocks bounced off a 21 month low. Today is quiet on the economic data front and the trading ranges of European indices will probably remain narrow until US markets open after lunch.

Oil and commodities suffered a big decline yesterday with oil tumbling through the $140 a barrel mark. The question is will this just present another buying opportunity for bulls and this morning an Iranian missile test has caused prices to jump $1, but still below the $140 level. US oil inventory data out today will no doubt lead to further volatility.