Investor/An insider's guide to the market: As the first quarter of the year draws to a close, the performance figures for equity markets present a mixed bag of returns.
With a few days to go to end quarter, at the time of writing, the S&P 500 index was down 3 per cent while the Nasdaq Composite had fallen by over 8 per cent.
European markets fared somewhat better with the FTSE Eurofirst index showing a rise of 4.2 per cent and the UK's FTSE 100 index up by just over 2 per cent.
The performance of the Irish market, excluding Elan, remains impressive as the Iseq index has risen by approximately 6 per cent over quarter one.
Although the recent performance of world equity markets has been mixed, when viewed in the context of the recent rise in the price of oil and upward pressure on global bond yields, share prices have in fact been remarkably resilient.
The sharp rise in oil price over the past year is no longer being viewed as a temporary spike. Analysts now foresee the supply/demand balance remaining very tight and therefore oil prices are expected to remain high for a sustained period.
The other recent negative development for equity markets has been a perceptible rise in global bond yields. This has been more pronounced in the US where the 10-year bond yield has risen by 50 basis points in recent weeks.
A rise in bond yields has been long anticipated and therefore a further rise in yields of about 50 basis points is probably already priced into current share prices.
Given current low rates of inflation, the prospective rise in yields should be contained, with 10-year yields unlikely to go much above 5 per cent.
Therefore, while bond markets will probably act as a slight drag on equity market sentiment, yields are unlikely to rise so far as to cause a new bear market.
In Investor's view, the positives and negatives are just about offsetting one another at the moment and therefore stock markets may well trade sideways for a few more months.
Stockpicking becomes very important in this environment and it is instructive to look at the variation in performance among the constituents of the Irish market over the year-to-date. Several small and medium cap companies have recorded strong performances.
Kingspan stands out with a share price gain of one third, which is very impressive given the strong share price recovery already enjoyed in 2004.
Another notable performer was Paddy Power, whose share price rose by approximately 30 per cent. The three largest quoted companies - AIB, CRH and Bank of Ireland - only managed modest gains in the range of 1 to 5 per cent. Of the larger mid-cap stocks, Ryanair, with a gain of 17 per cent and Anglo Irish Bank, with a gain of 12 per cent did best.
