'Stockmarkets climbing wall of worry'
The market action we have seen unfolding so far is very similar to the recovery from the March 2003 lows at the end of the ‘dotcom’ bear market.
By Jeff Hochman, director of technical analysis, Fidelity
Published: 2:49PM BST 29 Jul 2009
If that analogy holds, we can expect to see some market gyrations in the short term as investors wait for further evidence of economic and corporate improvement, which may be a few months away. Markets always have to climb this wall of worry and the fear of being left behind will become increasingly strong.
There is a risk that markets could fall by around 5pc, however this should be seen as a buying opportunity.
The alternative scenario is that markets stay fairly flat, within a trading range, before trending higher as each piece of new data adds weight to the evolving recovery story.
Renewed investor interest has helped emerging markets to move up strongly, so much so that they may see some short-term consolidation in what remains a strong secular story.
There is a considerable amount of money waiting on the sidelines in money market funds. This missed the first stage of the rally but it can be committed to the market once conditions improve.
Around two thirds of the money is institutional and some of it will be specifically allocated to cash, but a big chunk of it is cash that it is likely to be used for reallocating to equities.
By any historical standards, investors are currently holding extreme levels of cash at a time when the yield is modest. In the past, when cash levels have either met or exceeded the value of the equity market, this has marked a significant low.
The market action we have seen unfolding so far is very similar to the recovery from the March 2003 lows at the end of the ‘dotcom’ bear market.
By Jeff Hochman, director of technical analysis, Fidelity
Published: 2:49PM BST 29 Jul 2009
If that analogy holds, we can expect to see some market gyrations in the short term as investors wait for further evidence of economic and corporate improvement, which may be a few months away. Markets always have to climb this wall of worry and the fear of being left behind will become increasingly strong.
There is a risk that markets could fall by around 5pc, however this should be seen as a buying opportunity.
The alternative scenario is that markets stay fairly flat, within a trading range, before trending higher as each piece of new data adds weight to the evolving recovery story.
Renewed investor interest has helped emerging markets to move up strongly, so much so that they may see some short-term consolidation in what remains a strong secular story.
There is a considerable amount of money waiting on the sidelines in money market funds. This missed the first stage of the rally but it can be committed to the market once conditions improve.
Around two thirds of the money is institutional and some of it will be specifically allocated to cash, but a big chunk of it is cash that it is likely to be used for reallocating to equities.
By any historical standards, investors are currently holding extreme levels of cash at a time when the yield is modest. In the past, when cash levels have either met or exceeded the value of the equity market, this has marked a significant low.
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