What should stock market investors be watching for in the current uncertain environment? According to Standard Life fund managers, it is either the outlook for earnings growth of the companies that you intend to invest in, or how much money you have to spend on such investments. Theoretically it should be the former. The value placed by investors on a company or its share price should reflect what you expect its future earnings to be, discounted by some rate of interest to produce a present-day value for these future earnings. Therefore, assuming no change in this rate of interest, a share price would only be expected to rise if investors suddenly believed that future growth in earnings was going to be higher than they had previously assumed.

The corollary would hold for a share price fall. So far this year, the technology-laden Nasdaq index has risen by more than 14 per cent, despite many high-tech companies' poor results, including cautious forecasts for the remainder of 2001. At the same time, the healthcare sector of the Standard & Poor's 500 index has fallen by almost 10 per cent, despite good company profits and few profit warnings. This is to do with investor sentiment, as they have recently been moving out of last year's winners, the safe oils and pharmaceuticals, and into the losers of 2000, the TMTs. The main beneficiaries of this mood swing were those companies that had most to loose from the closing of corporate bond markets - the Internet and telecom companies - because they have the greatest need of finance. But the key factor affecting investor sentiment will be the interest rate outlook itself, with rate changes in the US market critical for the outlook for stock markets, according to Standard Life.