FTSE 100 falls below 1999 peak

The market shows they don’t understand exponential change and i'll explain why.

Article updated: 28 February 2020 2:00pm Author: Michael Baxter


Markets have been plummeting again, but for me the biggest puzzle is why now? I have a theory that markets don’t get exponential. If you do understand exponential, you can beat the markets, both on the way up and on the way down.

On December 30, 1999, the FTSE 100 peaked at 6,930. It took until 2016 for the index to pass that level. The highest ever intraday for the index occurred on May 22nd 2018, with a reading of 7,903.50. Well, as I write, the index is at 6,796.40.

It’s odd, in recent months there was a glut of media stories talking about the absurd levels stock markets had reached and how a fall was inevitable. Well, they have got their wish, but I am not sure you could have said the FTSE 100 reached absurd levels — maybe it did in 1999, but ever since then its performance has been awful.

Look at US stocks and it is a very different scenario — even after recent falls, the index is currently double the peak level, reached in the year 2000. The index has suffered its biggest fall since the finance crisis, but even so, as I write, it is back to the levels seen last October. Sure the recent falls have been dramatic, but then the rises in the index over the last few months have been dramatic too. (Incidentally, when you look at the FTSE 250 you see a story that has more in common with the S&P 500 than the FTSE 100).

What it isn’t

As ever, in times like these we get silly theories, for example, the Coronavirus is being hyped by Democrats trying to undermine President Trump.

Neither was it caused by 5G

What it is

The spread of Coronavirus is, however, an example of exponential change.

In early February, UK Health Secretary, Matt Hancock, said that infections were doubling every five days. I am not sure whether it has entirely panned out to that extreme, but the spread since then has been roughly consistent with that exponential rate.

As was warned here at the beginning of February, “it is the speed of infection that provides the biggest cause for concern...It’s because of this infection rate that authorities are likely to take extreme measures to try and stop the spread — and it is these extreme measures, however necessary, that pose the greatest economic threat.”

The markets, however, took the best part of a month to cotton on to what Coronavirus means. Of course the economic damage will be significant. Goldman Sachs warned that the virus could wipe out all growth in US corporate earnings this year. 

“All growth” — it is as if this is a radical idea. I would say that if corporate earnings in the US this year can equal last year’s, given the chaos likely to be caused, not so much by the virus, but our reaction to it, then I think we would all breathe a sigh of relief if that is as bad as the economic damage gets.

Markets never do understand exponential— nor do us humans.

Don’t get me wrong. I am sure the current sell-off will create buying opportunities. Coronavirus will hit corporate earnings and indeed the economy this year. I am not so sure that the long term outlook, which is after-all what the markets are supposed to reflect, will be adversely affected.


It is not only bad things that change at an exponential rate. Moore’s Law — describing computers doubling in power (number of transistors on an integrated circuit) every 18 months, is an example of an exponential function.

And the markets, indeed most humans, totally failed to grasp the significance of Moore’s Law. As computers continued their upwards march to ever greater power, a number of tipping points were passed. One of those tipping points made the iPhone possible. But always critics looked at the ‘state of the art’ at any one time, focused on what computers couldn’t do, and totally failed to grasp that because of Moore’s Law, that state of the art didn’t mean gradual change, it meant a 1,000-fold increase in power in 15 years, a million-fold increase in 30-years and billion-fold increase in 45 years. For that reason the markets failed to grasp the significance of the technology and failed to spot the enormous wealth that would be created. Investors who had grasped that would have beaten the markets’ valuation of techs on the way up, just as those who understood the significance of exponential when applied to Coronavirus, could have beaten the markets on the way down.

These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees

Michael Baxter portrait photo
Michael Baxter

Economics Commentator

Michael is an economics, investment and technology writer, known for his entertaining style. He has previously been a full-time investor, founder of a technology company which was floated on the NASDAQ, and a director of a PR company specialising in IT.

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