During last week's volatility, old economy stocks outperformed the market with Marks & Spencer bec...
During last week's volatility, old economy stocks outperformed the market with Marks & Spencer becoming the number one performing stock in the FTSE 100 for the year to 16 March.
Led by volatile technology stocks, the FTSE 100 and the S&P 500 hit their lowest periods on 15 March since November 1998. The FTSE dropped below 5,500 while the Nasdaq fell to well below the 2,000 mark. At its peak one year ago the Nasdaq had reached 5,000.
The volatile conditions are really only affecting technology stocks, according to some UK fund managers, with the overall market appearing to do well despite the falls in the world indices last week. Most are saying the falls do not signal a crash similar to the one that occurred in October 1997.
Alex Lyle, joint head of pan-European equities at Threadneedle, said that in 1987 the market pretty much as a whole was overvalued, and the crash followed a strong run up of performance.
Lyle said: "This time around this has not been the case. It is only certain sectors such as technology and telecoms that are considered overvalued and have performed badly. The rest of the market has seen some good performance.
"P/E ratios were also much higher in 1987 and were rising. Today the P/E of the FTSE has been coming down over the past few years from the high 20s to the low 20s. Overall, the market today is a lot weaker as whole than it was in 1987."
Humphrey van der Klugt, manager of Schroders' UK Equity Fund, said the economy is not in a part of the economic cycle that is difficult for equities, as they have not yet had the full benefit of interest rate cuts. However, there are problems associated with peaking equity growth.
Van der Klugt said: "It is likely we are going to see a volatile equity environment, with a big swing between the two opposing forces of falling interest rates and the corporate squeeze on profits, which will continue to affect sentiment."
On a broader scale, however, van der Klugt said that the UK economy looks fine, with the consumer holding up quite well.
According to van der Klugt, the key to a market turnaround is corporate profits. He said: "Equities are all about growth, we need to look for indications that the corporate profit cycle is beginning to turn up again. The equity markets typically turn 12 to 18 months before the upturn of corporate profits."
Ian Beattie, deputy chief investment officer at Edinburgh Fund Managers, said there is enough scope in the western economies to cut interest rates and make tax cuts, to stop the economies going into recession. He said: "There are a lot of decent companies that can drive the economy, with this and interest rate and tax cuts, it will feed through to the markets and corporate profits and help improve sentiment.
"We don't think the stock market is overvalued at the moment, stocks are cheap and at the moment we are happy buying at these levels."
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