2002 was the third consecutive year of negative returns from shares, cumulatively the worst period for stocks versus bonds since the 1930s. After some signs of stabilisation in the first quarter of 2002, the bear market downtrend resumed in April as companies struggled to make good on analysts earnings estimates for the second half of the year. In addition to the ‘quantity’ of earnings, quality also became an issue with accounting scandals unearthed at US companies Enron and WorldCom,among others.This raised serious questions for investors about the reliability of corporate earnings announcements and put pressure on valuation levels,forcing global stock markets lower.European stock markets were among the worst affected, in part due to continued euro appreciation versus the US dollar.Puncturing the seemingly endless downtrend, July and then October saw tactical bounces,as investors took tactical advantage of seemingly oversold levels. However, rallies were short lived with any rally met with further bouts of selling, resuming the market’s downward trend. In late 2002 and early 2003, attention turned to escalating geopolitical tension and the prospect of conflict in the Middle East. This triggered several weeks of volatility as investors digested the impact of news from the front line and the economic impacts of war, not least sharply higher commodity prices. Thankfully the war proved short lived, with the subsequent drop in oil prices and geopolitical tension triggering a wave of renewed optimism towards risk assets.
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