|
Against a backdrop of continued market uncertainty and renewed hostilities in the Middle East, Fisher Wealth Management looks at issues in the headlines in its latest update.
Market correction or birth of the bear?
Market behaviour since May displays the hallmarks of a correction rather than the onset of a bear market, namely:
- the decline began abruptly;
- prices fell on no significant news;
- sectors leading on the upside underperformed on the downside;
- Bull markets rarely end dramatically.
By comparison, in 2000 the Morgan Stanley World Index peaked in March, but did not stray from a 9% bandwidth for more than 10 months until September 2000, churning for six months past its peak before melting down months later.
Corrections tend to last between one and four months but as they are psychological in nature, not based on any fundamental causes, it is difficult to call their end.
Overall market environment - 1979 revisited?
Parallels between 2006 and 1979 are striking:
1979 - the new Fed chairman increased interest rates in a climate of rising gold and oil prices and tensions in Iran. As a result, the MSCI World Index fell 10% over one month, followed by an immediate resumption of the bull market.
2006 - often cited causes of the recent market downturn include: new Fed chairman Ben Bernanke's unsuccessful attempts to communicate central banking policy, inflation concerns, rising gold and oil prices and renewed tensions in the Middle East.
Inflation concerns
Commentators see resurgent inflation leading to excessive tightening by central banks and reining in global economic growth. Fisher believes that these concerns are overblown: economic conditions across the developed world remain vibrant and can withstand moderate increases in short-term rates.
The Lebanon/Israeli conflict
Renewed hostilities between Israeli and Hezbollah has doubtless unsettled markets. Without detracting from the humanitarian crisis, the potential economic impact, put in its correct context, is less dire. The combined GDPs of Israel, Syria, Lebanon, and Palestine account for less than 0.6% of the GDPs of the G8 nations. The only oil exporter, Syria, contributes just 0.5% toward world production. Fisher does not see this conflict having broader implications for global equities.
Outlook remains good
Based on the following factors, the prospects for markets remain largely positive albeit with the potential for some further short-term downside:
- economic growth continues to exceed expectations;
- corporate earnings growth outstrips consensus estimate;
- long-term interest rates remain benign;
- M&A activity continues apace;
- the global yield curve remains sufficiently steep.
Underlying fundamentals remain strong and underpin our continued bullish outlook. Corrections are typically short-lived and we believe a stronger upward trend is likely to reassert itself later in 2006. Now is not the time for investors to lose resolve.
For further information please contact:
Miles Standish
Managing Director
Fisher Wealth Management
020 7318 7183 |
Hugo Mortimer-Harvey/Sally Wright
quill communications
020 7758 2234
020 7758 2238 |
|