In the UK, the previous Friday was particularly notable after trading was suspended twice. The stock market closed early at 12.30pm after the Great Storm of 1987, which meant few dealers had made it to their desks.
I wrote recently about predictions that we could be staring down the barrel of a new market correction as we continue to ride out the eight-year bull market. There are many contrarian viewpoints on whether we could be facing a significant correction and, if so, what the causes would be.
However on face value, many commentators have already noted that today’s market looks even more over-valued than in 1987, with US companies now trading at about 23 times their earnings, against 20 times back then.
A further discussion that has emerged this year is the impact that ETFs may be having on market valuations. This marks a decisive shift from even just 12 months ago when many were lauding the low cost and transparent nature of the vehicle against the active management industry.
There does appear to be a marked sea change among many commentators with a growing appreciation for truly active managers who not only beat their benchmark but also take an actively engaged ownership stake in the companies in which they invest.
As to whether popular opinion will turn back towards favouring ETFs; or whether there may indeed be a market correction – and, if so, where the blame for this will be laid – we will have to wait and see.
The fact remains that whether a market correction comes before the end of the year, or is still some time away; inevitably it will occur at some point, if valuations continue to rise.
Communications channels should therefore be strengthened now in preparation and, as I said previously, while there can be a temptation to shut the doors and stop talking to clients, the media or even staff during difficult times; it is arguably even more important to maintain an open line of communication when times are tough.
Just as we tell investors not to react emotionally when the markets turn, nor should managers seek to pull back just as their clients need them most. Regular, honest and clear communication is required if you seek to build lasting relationships with clients, and the media.