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FRAYED NERVES Six months of market gains have not convinced investors that the mayhem is behind us. According to a survey undertaken by TheMarket.com, more than one-quarter of respondents in the U.S., and 41 per cent elsewhere, say the worst is still to come

INVESTMENT REPORTER

We heard the clarion call of the Dow at 10,000 last week. Editors responded with large headlines, but investors paid the old watershed little heed.

They were more focused on the first wave of third-quarter results from the heavyweights, such as Intel, Goldman Sachs, IBM and General Electric. How much trust can they reasonably put in 10,000 when profit growth derives from cost-cutting?

Not much apparently, at least if new data showing that retail investors have been pumping their money into bonds faster than equities is anything to go by. Nearly $55-billion (U.S.) went into U.S. bond funds last month, as $13-billion flowed out of equity funds. The trend was the same in Canada, albeit on a smaller scale.

Ten years ago, 10,000 was a magical barrier to break. But today, it's just a number. Investors are simply too anxious about the state of the economy and about recouping the last 20 per cent of the losses on their portfolios, says David Eisner, president and chief executive officer of TheMarkets.com. The New York firm aggregates key data from the Street, and last week its survey of more than 100 institutional investors around the world found that six months of market gains had not convinced investors that the mayhem is behind us. More than one-quarter of respondents in the U.S., and 41 per cent elsewhere, said the worst is still to come.

That anxiety defines the mood today. How else to explain the bizarre moment last week when Australia briefly became the most important voice in global economics? There is a hunger for definitive indicators, and the Australian decision to bump up interest rates sent experts scrambling to analyze a new set of scenarios, one of which has the Bank of Canada being forced to jack up its rates this week. That speculation helped send the loonie flying over 97 cents U.S.

Ottawa gets its moment in the global spotlight tomorrow morning. Canadian economists agree that the Bank of Canada will not raise rates until next year, but they differ on whether the rise will come as early as the first quarter, or as late as the last quarter.

Canada is emerging from the recession in better shape than expected and "the darkest days now seem to be in the past," the Conference Board announced Friday. But inflation is negative here and the strong dollar is a coolant running through this stimulus-fed economy.

That all speaks to a week of moderation on the markets, barring some unexpected phenomenon. Frayed nerves are slowly healing, appetite for risk is gradually rising, and bonds are the preferred way for investors to bring their money back in from the sidelines.

© 2007 The Globe and Mail. All rights reserved.

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