If that is the case we might as well draw another line under 2001 and come back in January 2002 … or should we? We at NatWest Stockbrokers think this deserves a little closer analysis. Quick and easy online searches for all yourinvestment needsInvestors have had to learn a tough lesson. It is often said the performance of equity markets in January sets the tone for the rest of the year.

If that is the case we might as well draw another line under 2001 and come back in January 2002 … or should we? We at NatWest Stockbrokers think this deserves a little closer analysis.
The signs are not good. The benchmark FTSE 100 Index has fallen sharply this year, to levels not seen for the past 16 months or so The reason for the decline is obvious. Though globally, monetary authorities are “in motion”, cutting or about to cut short-term interest rates, in some cases aggressively, investors are running scared about how the economic slowdown is adversely affecting the corporate sector.The sector is in the middle of a deep investment recession that may need more than interest rate cuts to resolve.But before investors reach for the valium, a glance at the weighting of each sub-sector of the All-Share Index proves instructive. It is already well known that Vodafone and BP Amoco battle it out for the status of Britain’s largest company.

It is perhaps less well known that, in terms of the UK stock market, the fortunes of the four largest sectors carry the fortunes of the overall Index in the palm of their hands.The table (below) disguises the fact that Oil & Gas (grouped within the Resources sub-sector) accounts for 11.6 per cent of the All-Share Index by weight. Pharmaceuticals (grouped within Non-cyclical Consumer Goods) accounts for a further 10 per cent. Telecom-munications Services (Non-cyclical Services) accounts for a further 14.6 per cent while the Banks (grouped within Financials) account for 15.6 per cent.Investors can see that, even accounting for the woes of the Telecommunications sector over 2000, the big four still account for over half the total UK market by weight. How they perform, therefore, has a disproportionate effect on the performance of the total market.We have compiled data from IBES relating to the trend in corporate earnings revisions over two critical time periods and look at the difference to show where the pain is being felt. We also include a column covering the relative performance of each sub-sector over the year to date.What becomes clear is that so far the sub-sectors comprising the “big four” have proved remarkably resilient.

Indeed only Financials has been subjected to downgrades of late.One of the critical reasons why the UK market should be (but has so far proved not to be) more resilient to global financial market trends, is that it has relatively less exposure, by weight, to Information Technology sectors where the bulk of the downgrades have so far emerged.Such is the high profile accorded to household names in the Hardware and Software sectors that they tend to receive a disproportionate amount of column inches in the newspapers.We conclude that the market’s weakness has shown little correlation with trends in earnings expectations. We believe that negative sentiment rather than operating reality is having a disproportionate impact on the market’s movements over 2001.Our strategy for investment success is to concentrate on the more domestically focused consumer cyclical sectors such as Housebuilders, certain Transport, certain Engineers, Leisure, Entertainment and Hotels. In such market conditions an active approach to investment can still prove fruitful.Jeremy Batstone is Head of Research at NatWest Stockbrokers. If you are a private investor, the stock market’s present behaviour may seem confusing. Fear not! The professionals are just as mystified by the lack of a trend. Quick and easy online searches for all yourinvestment needsIf you are a private investor, the stock market’s present behaviour may seem confusing.

Fear not! The professionals are just as mystified by the lack of a trend.
Shares have been in a so-called trading range since the start of last year. The FTSE 100 index rose from 5,995 to 6,798 only to end at 6,097 in December It has since bobbed up and down. “Stock markets are facing a range of uncertainties at present,” warns Michael McLintock, head of M&G Securities, the oldest stable of unit trusts. A conflict in the Middle East or a general election are enough to bring out the bears, and this time they believe the bank rate will rebound afterwards. These pessimists have also heeded the early warning of President Bush that the USA may face a recession.The bulls will have none of it. The oil price and bank rate are well on the way down, with inflation curbed. Britain’s economy is robust enough, and Gordon Brown will be there in a year’s time.