Investors are being encouraged to continue ploughing their sav-i into the stock market after shares in London recovered all the los-incurred since September 11
The advice comes despite Ameri-s Dow Jones industrial average tumbling on Friday after a case of irax was diagnosed in New York. Consumer spending in America > slumped by more than three times economists' predictions in itember, pushing share prices back below pre-attack levels.
The FTSE 100 index of Britain's largest companies close on Fri-1 at 5145—up 112 points on its September 10 close. The Dow in v York rallied late on to close at 9311, down 66 points. Although 3t experts are predicting further volatility in the coming months, / remain cautiously optimistic that the FTSE 100 will begin a sus-ed, if rocky, rally towards 5500 by the end of the year.1 The im-diate economic outlook is still bleak. Some commentators predict t America will endure a recession lasting six months. They also ex¬it Britain to suffer a sharp slowdown. But analyst say the market is
well placed to absorb any further bad news.
Sharpen economic downturns can, perversely ( ffl ?g j&), be good for the market because they force firms to be more cost-effi-cient. Therefore, any announcements about rising unemployment or corporate streamlining could have a positive effect on shares. Of more concern to private investors is the impact that another terrorist attack would have on shares. If this were to happen, the market would almost certainly slump again. But history suggests that it would, once again, make up any lost ground within weeks.
Experts are therefore urging private investors not to repeat their past mistakes, when they waited for a sustained rally before feeling confident enough to invest.2 Cross said, "It's peculiar that investors feel it's safer to invest after the market has risen by 25% than when it has fallen by 25%. Common sense suggests that the opposite would be more appropriate. "3 Mike Lehnhoff of Gerrard, the stockbroker, said that if the market hit 5500 and remained around that level for some weeks, it would be a sign that further, sustained gains were imminent. He said, "Getting back to 5500 would be important, because if the index stayed at that level, the psychology of the market would change substantially. Defensive shares would become too expensive and big investors would start moving into value stock, which are the type of firms that do well in an economic recovery."
But private investors could be forgiven for their pessimistic mood, as nearly all Isa buyers have suffered big losses. But investors can take some comfort from the fact that the next three months are traditionally the best-performing period of the year for the stock market." David Schwartz, the stock-market historian, said the index almost always rose in the period between November and April. Since 1974, the market went up on 24 occasions between November and April, by an average of 15 % , and dropped only three times. Schwartz said, " It' s no guarantee for this year, but history is on our side. "
