Investors who enjoyed the giddy heights of share price performance last year must now decide whether to put more money in or take profits as the market slides sideways - if that is what is now happening.
JPMorgan Fleming Asset Management says its Investor Confidence Index is close to its all-time high since being set in April 2001.
However, perhaps the best evidence comes from those at the coal face and what they say about capital expenditure by their customers.
Capex is a key measure of economic strength as it is money companies spend investing in their own futures. Those not confident about the future will tend to cut back on capex in order to secure the bottom line.
Capex took a big hit in the recently ended bear market, particularly on the IT side.
Many company results reported in recent weeks say a lot about improving capex and spending on so-called "picks and shovels", i.e., the tools or services acquired through capex in order to make things or provide services to end customers.
Arm – the chip designer – has made strong share price gains since March 2003, and recently started reporting improvements in sales and profits to match investors' expectations.
XP Power supplies power equipment such as transformers to makers of tools and equipment used in various industrial, manufacturing and services capacities. Executive chairman Larry Tracey says there are differences between its US and European markets, but customer confidence is definitely on the rise. Customers started spending more money in the second half of last year compared to the first half as the company delivered its fourth year of margin growth.
Patents, as another measure of companies’ levels of confidence, are also on the up, according to results from Murgitroyd. The Alternative Investment Market-listed company is building up a pan-European network of specialist patent attorney offices. Chief executive Keith Young says these offices were definitely busier in the six months to November past than in the similar period a year earlier.
So what of the profit takers?
Axa says it has shifted its asset allocation view to ‘neutral’ because of "uncertainty" sparked by the shift in monetary policy away from fears of deflation to renewed focus on inflation.
If the US raises interest rates, it could have several impacts, including a stronger dollar against the euro, and a possible short-term fall in stock markets as investors pause to consider putting their money in relatively better performing investments.
Multi-manager T Bailey is betting Japan will do better than the US.
UK stocks could fare better for technical reasons according to JPMF’s argument. Investors will look to the end of the fiscal year as a reason to put more money into tax efficient equity investments such as ISAs.
Then there are the unknowns that can throw all stock markets around. A big issue currently is the spread of bird flu across Asia. But that may miss the point. Franklin Templeton Emerging Markets fund manager Mark Mobius says of top performing market Thailand simply that: "no market can sustain performances of 100%+ in consecutive years."IFAonline
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