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Investment view

The American reporting season is now well under way. It never ceases to amaze me how swiftly those Yanks produce their figures. So far, all the evidence supports a strengthening economic picture Stateside. Indeed, investment giant Merrill Lynch reported record earnings while the world&#39s leading chip-maker Intel was able to disclose a near doubling in quarterly profits. Why then did the market receive these figures in less than adulatory fashion?

Part of the problem is perceived as the era of cheap money coming to an end. The American consumer is clearly continuing to spend and at some stage the Federal Reserve Bank may feel the need to head off any further rise in consumer spending, which could impinge on inflation. Not that it is easy to see where a rise in the cost of living will be coming from. The unemployment numbers may be dropping at last in America but not at any meaningful speed. This remains pretty much a jobless recovery. That should help keep the lid on inflation.

We do not have as much to get our teeth into back at home as the majority close their books at the calendar year end. Also, we are not as quick off the mark in getting our figures into the public domain. Those that are snappy deliverers must sometimes wish they had better news to impart. Marks & Spencer was in the vanguard of the retail sector reporting sales figures for the first quarter of 2004. On the face of it, the company&#39s statement did not make happy reading.

All this serves to remind investors that the dynamism of the market means there are few names on which you can rely indefinitely these days. The roll call of those dismissed from Britain&#39s headline index and confined to near obscurity may not include any major household names like M&S but there are plenty of familiar businesses there. Buy and hold strategies look dangerous these days. Little wonder that the funds heading the tables of best performance among UK all companies are those run by stockpickers.

With Easter behind us, we enter into what can be considered a twilight zone for markets. Not for nothing do pundits say sell in May and go away. You can almost feel the torpor creeping over shares. This year, though, it will not just be the economic numbers that will keep those investors not on holiday watching their screens on a regular basis.

The change in attitude has come about as a result of geo-political risk. We know from the way that the market reacted to the Madrid terrorist bombings that there is great sensitivity to events such as these. Yet the recovery has been quite comprehensive. Should we be overly concerned at the risks inherent in more terrorist activity?

It is hard not to come up with the conclusion that any major incident is not priced into the market. Perhaps more important, the consequences are not allowed for, perhaps because it is hard to be certain quite what might result from any such unwelcome event. It is such uncertainties that make me disinclined to chase the market too far. Hopefully, economic news will continue to improve but, even barring incidents, it is hard to see shares making significant progress from here. Careful selection of your investment options should be the watchword.


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