Market Musings

We're flying now

Returns for April

Another positive month

March's rally developed and blossomed in April, extending already healthy gains into a stronger rally than we saw in 2003 or 1995, when recovering from those years' respective market lows.

It doesn't get much better, really, with the FTSE 100 up over 20% from the early March low and the technology index up nearly 30% matched by the industrial transportation index. Now this is interesting, as you may recall from our March Musings that these sectors tend to lead when economies come out of recession. Perhaps, just perhaps, we may not get the hefty fall which usually follows a bear market rally.

If this really is the start of a genuine rally, but several indicators suggest a double digit fall in percentage terms is just around the corner.

This makes it very difficult to read the markets at the moment and perhaps only the brave will stay on board all the way through - of those who try to trade the markets, that is, others will find that this will continue to be a good time to accumulate real assets - and that includes property, as well as equities - on a three to five year view, although property is likely to take longer to return to favour.

Meanwhile although most investment mana-gers have been saying that we can expect a bear market rally, followed by a summer setback before the real bull market starts, some well-respected managers have said, tentatively, that markets could drift higher across the summer months, with no real setback worth speaking about.

Another view which is just emerging, is that, rather than a general setback, there is a likelihood that there will simply be a sector rotation - by that what they mean is that while defensive stocks like utilities and pharmaceuticals did well last year (well, held their own, rather than falling) but have slipped back while cyclicals (stocks which boom in a bull market and plummet in a crash) have blossomed of late, this is likely to reverse, and the defensive stocks may well pick up again, while the cyclicals fall back.

Time will tell but, once again, it's nice to see the bears not getting it all their own way.

Short term we could well see a setback before further significant progress is made.

So, what do the investment houses think?

Most fund houses have now moved back to being fairly neutral on most assets. They are now only positive on UK and US larger company shares, Emerging market shares and UK corporate bonds - although they are neutral to positive on the Yen as well.

They are negative on Japanese equities and on UK and overseas property - the rest they are neutral on.

Once again, this masks significant variations; three are pretty well entirely positive on equities, while one is almost completely negative across the board on them. There are also three investment houses which are positive across the board on fixed interest - and one which is entirely negative on all fixed interest.

Interestingly enough, none of those favouring equities across the board favour fixed interest and vice versa those favouring fixed interest.

The markets will continue to be bumpy but at least funds are finding it easier to deal.

The above is not intended to imply any advice.

MDM Associates Ltd, MDM House, High Street,

Ripley, Woking, Surrey, GU23 6AN.

(All data: source: Sharescope: to 30/4/09)