September and October are notoriously volatile months in the stock market. Mark Twain actually quipped that so was November, December, January etc etc! Global stock markets have travelled a long way since the lows of March. In the UK the stock market has rallied 42% up to a few days ago. As investors come in from their holidays I think many will be tempted to book a profit. So perhaps it is not surprising to see the UK market fall and even less surprising given the Shanghai (the Chinese market) has taken a fall of over 20% over the last few weeks.

Speaking to professionals who visit other investment companies it is noticeable how many of them are saying that the discretionary fund managers are still holding large portions of their portfolios in cash. They have been expecting a correction but have not seen it and I sense a degree of panic. This suggests to me that any fall in the market is more likely to be temporary, as investors who missed out on this rally will be trying to buy back in. With current conditions likely to persist for at least another year I think any dip is more likely to be a buying opportunity.

While I remain gloomy on the economy, I do think the huge amount of cash sitting on the sidelines earning very little will gradually be redeployed in the market both in corporate bonds and equities. If the rally does broaden out then surely fund managers like Neil Woodford of Invesco Perpetual Income and High Income or perhaps Chris Metcalfe of Newton Income will start to see a more compound performance.