Investors should brace themselves for a continuing roller coaster ride in the stock markets. According to Standard Life Investment Managers the markets have a few more loop-the-loops to suffer through yet before volatility eases and financial prices stabilise. We are in the middle of the quarterly results season which will provide some focus for investors.
Several major US stocks, including General Electric and JP Morgan, report this week as do Yahoo, the discredited internet stock, and Motorola. Investors are holding their breath for US data on payrolls and employment as they try to predict what the Fed will do, or not do, to interest rates in August. UK economic and inflation data are expected to remain benign, while in Europe the focus remains on hoped-for or sign-posted mergers and acquisitions activity as well as new issues.
There are 14 flotations planned on the Neuer Markt and how they are accepted will be a good measure of sentiment towards continental stocks, especially in "new" industries. Japanese stocks remain in thrall to two key factors: firstly how US stocks, especially tech stocks, behave and secondly whether or not the Central Bank governor signals the end of easy monetary policy and moves to raise interest rates, despite worries raised by the Japanese and foreign governments that the economy is too weak to justify such a rise. Hibernian Investment Managers in its latest report notes the continuing switching away from Irish shares to other eurozone shares by the large investment institutions. Foreign investors are also showing little interest in buying into the Iseq Index at the moment which is another factor depressing prices here. Other negative influences are the tighter profit margins enjoyed by banks, which has affected financial stocks, and the worrying spiral in inflation.
On the upside, Hibernian said economic growth should remain strong, albeit at a slower pace. It maintains a high level of confidence in company profit forecasts, with technology companies continuing to benefit from growth in the sector. And further corporate activity among second-line stocks is likely to gather pace. Looking at the European market, Hibernian said it is unlikely to make significant progress as long as the threat of higher interest rates exists. The relative lack of enthusiasm and some large flotations suggest a sideways move for now.
