| Headline: Productivity is crucial to a soft landing Source: Euromoney Date: April 2001 Author: David Roche In the first quarter of this year, the US Federal Reserve has cut interest rates by 150 basis points. But Nasdaq is down 25%, most European equity markets have fallen 15% to 20% and even the Dow, which had been flat for two years, is now off 14% for the year. It’s true that if you strip out the technology, media and telecoms stocks from these indices, the old-economy stocks have held up well. But you can’t have it both ways – putting the new-economy stocks into the index when they go up and removing them when they plunge. So does the sell-off in hi-tech stocks herald a long-term bear market in equities and a hard landing for the US and global economies? I don’t think so. One big reason for optimism is that the overvaluation of equity markets relative to bonds during 2000 has swung back in favour of stocks. In the US and Europe, trailing P/E ratios are close to their long-run averages. Major equity markets look very attractive relative to 10-year bonds. And market sentiment is increasingly out of kilter with economic reality. |