The stock market remains quiet, but uncertainty over interest rates and inflation continues. Alan Mi...
The stock market remains quiet, but uncertainty over interest rates and inflation continues.
Alan Miller, mainboard director of Jupiter, says: "The stock market has not moved in the last two years.
"The market has had few changes, growth sectors such as TMT have fallen 20%-80%, a number of these firms have received profit warnings and have had disappointing results. Investors are much more sceptical about whether TMT stocks can make money."
The UK stock market is likely to move in line with corporate earnings growth. Its level has been driven by three companies - BP, Vodafone and Glaxosmith-kline - which all hold about 5% of the market share. Mergers within these companies have made them hold a substantial share of the market.
John Wilson, investment director of UK Equities Standard Life, says: "Possible mergers between Barclays and Woolwich, and Royal Bank of Scotland and Natwest, will be good for the stock market."
Miller says: "Old fashioned stocks, such as tobacco, utilities and pharmaceuticals, have recovered substantially. They have a reasonable predictable revenue of profit."
Wilson also prefers the old economy. "They are looking at the defence sectors such as utilities and tobacco, and TMT stocks have fallen sharply," he says.
He adds: "No one is really sure on the market at present, but there is a lot of liquidity around and people are watching interest rate changes to know if it is safe to invest."
For the economy the main worry is inflation and interest rates. Inflation remains low despite the increase in oil prices. Though Miller adds: ìOil prices are unlikely to move substantially higher.î
Interest rates have risen in the last six to 12 months, are now towards the top end of interest rate cycles.
Wilson says: "With interest rates, most thought rates were getting close to peak, but at the moment there is a bit of uncertainty. A further rise in interest rates is now expected, but by how much is the question. However, inflation should not be a problem."
"GDP has been growing to about the trend but there are signs things are slowing down in the economy, the housing market has dropped off the boil, though we expect GDP to grow above trend next. Productivity has been okay," says Wilson.
He adds: "The strength of sterling remains a problem, particularly as the euro refuses to strengthen. The government is under pressure from overseas companies based in the UK, but what the ultimate impact is difficult to see.î
Bonds have been strong, but there has been a general lack of issuance as the government is in a good financial position and does not need the cash.
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