It is six months since I last wrote this column, and what a turbulent time it has been. The US econ...
It is six months since I last wrote this column, and what a turbulent time it has been.
The US economy is still growing strongly, but the pace of growth has moderated as the Federal Reserve had hoped. The reasons have been the judicious rises in US interest rates, combined with the rise in the global price of oil, which not everyone forecast.
There have been pre-announcements from technology companies, such as Intel, Apple and Lucent, which have undershot their estimates, so that investors have become more nervous about the prospects for the whole of the technology sector.
Companies in other areas of the market have not been immune from this trend, which has made it a challenging backdrop, given the high valuations in many areas.
Sterling investors who have had US investments have made as much out of the strength of the dollar, as out of the market.
What of the future? The oil price has calmed down in the short term, but we have not yet had any winter weather yet. The political stunt by president Clinton of releasing some of the US Strategic Reserve should not have any meaningful effect; that oil needs to be refined, the refineries are working flat out, and even when refined it will take three months to come onto the market. In our eyes, there does not seem any likelihood of much cheaper oil until the spring.
The high oil price is definitely slowing down the world economy, and so we were particularly surprised by the last two rises in interest rates by the European Central Bank.
It seems to us that they were not particularly useful in trying to support the euro and may very well choke back the nascent economic recovery in the core European countries.
The Federal Reserve, on the other hand, has kept interest rates on hold for a number of months, and once the Presidential election is out of the way, we think that their next move will be to reduce short term rates.
The outcome of the election is too close to call at the time of writing, but it is fair to say that the choice of winner will have an effect on different sectors of the market. For instance, pharmaceutical companies are likely to do worse under Mr Gore, whilst those that are consumer-orientated are likely to do better under Mr Bush.
One market that has been particularly poor for investors over the past six months has been Japan. In a lot of ways, this seems to be a case of "two steps forward and two steps back," so that many investors are losing patience.
That said, there has been much cross-holding related selling in response to new accountancy rules, which should have seen a peak now that the end of September has passed, and there will be opportunities for good stockpickers. All in all, it is a time for holding one's nerve. Quality will out.
John Chatfeild-Roberts is director of Lazard Asset Management
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