Market sentiment remains fragile

Standard Life Investment Managers says that stock market sentiment remains fragile and this must be turned around fairly soon if an end-of-year rally is to materialise. It says while this is not the first time in the past five years that we have been in the midst of very jittery stock markets, the main difference this time is that it's the turn of the technology stocks to cause havoc on the markets. "Investors are learning the lesson that share prices, even those of tech stocks, can go down as well as up," according to Standard Life. This is most obvious in the Nasdaq market, which has a large, but declining, technology bias. It has been a bad year for the Nasdaq, which is now 40 per cent off its March peak of 5,048.

This slide has happened for two reasons. Firstly, interest rates have been rising, which increases the cost of money for companies, and money itself has been harder to obtain, as central banks rake back in much of the excess cash made available in late 1999 for "just in case" purposes ahead of Y2K. Last week Ms Abby Cohen, market strategist at Goldman Sachs, made positive noises about tech stocks and the US market in general. Such comments could mark a turning point because she is an influential figure and was partly responsible for the decline of Nasdaq in March when she advised that Goldman Sachs was reducing the tech weighting in its model portfolio. By signalling a switching back she may just be providing the much needed "line in the sand". But stronger forces will be required to turn back the tide longer term. If we are going to see a year-end rally we need to see these forces emerge soon.