It is just over a week ago that that the US S&P 500 index signalled the longest bull run in history, some 3,453 days when the Stock Market never saw a fall of more than 20%. In the UK, the luxury car maker Aston Martin has just announced its intention to IPO, and the analysts are already debating whether the company deserves a premium valuation to Ferrari.
In the US, Amazon’s market capitalisation continues to grow and looks set to hit $1tr shortly. When Stock Markets get this frothy, investors start to be nervous that a market correction is due. And who can blame them? When I started in capital markets some 30 years ago, I was always told that markets do not like uncertainty – and certainly there is a lot of that about, whether you want to talk of Brexit in the UK, or Trump raising tariff barriers around the world.
But is this like 2008, when we saw the last major market correction? As a Lehman employee at that time, I saw at close hand the impact of that fall-out, and I would prefer not to have to relive that experience. I have seen a number of Stock Market indicators that suggest the alarm bells should not be ringing quite as loudly in 2018 (yet); however, what is for sure is that markets do not go up for ever, and there will be a day of reckoning at some stage.
What does this mean for the communications and IR teams within companies? On several occasions, I have seen companies retreat into their shells when they encounter specific problems in their business, and the risk with a market correction is that many companies will bury their head in the sand and stop communicating with their stakeholders.
You could argue that the need to differentiate yourself becomes more acute at such a time. Companies need to ensure that investors and other stakeholders fully understand the factors which might put the company at the top, rather than the bottom of, any corporate league tables: company strategy, management strength, competitive advantage. For investors, in declining markets, active stock picking starts to look a lot more interesting than tracking an index.
And, certainly in the Investor Relations world, it could get a lot tougher to get your message across. I am already encountering a lot of nervousness that a market correction could put huge pressure on the buyside investors’ P&L account where revenues are usually linked to the value of funds under management, and this is likely to ricochet through the sellside brokers’ businesses, which are already under pressure post-MiFID ll. In this new world, IR departments for some companies may well have to source, and pay for, services, such as corporate access and research on their company, which historically they have had provided for free.
Perhaps there is already a role for communications and IR teams to start to sound a few warning bells to the C-suite whilst things are still going swimmingly. Comms teams could put into place contingency plans for different market conditions and consider any change required in the company’s messaging. Investor Relations teams may need to consider accelerating any changes they were considering in the post-MiFID ll world.
This may not make them popular in the boardroom – there is always a risk that the messenger can get shot – but the communications and IR teams do need to ensure that their company keeps calm and keeps communicating, whatever the Stock Market conditions.