At this time of year crystalball gazing is a favourite pastime of financial analysts and stock-market investors alike. While most of the predictions can be taken with a grain of salt, it is a useful exercise for investors to attempt to outline the likely developments in the overall financial climate. Listed below are selected financial events that occurred in the final few days of 1999 that could provide clues as to likely future trends at the start of this millennium.
On the second-last day of trading in 1999 all four of the major US stock market indices - Dow Jones, Standard & Poor 500, Nasdaq, and Russell 2000 (smallcap stocks) - closed at record highs.
On its own this is not a particularly significant statistic but it does serve to highlight just how strong the US stock market has been during 1999. Underlying this strong performance is a US economy going into its 10th year of economic expansion and as yet there are no signs of inflation getting out of control. A rapid pace of technological advance has enabled the US economy to enjoy an unprecedented productivity boom, which shows no signs of abating.
Going into 2000 all of these positive factors remain firmly in place. The only apparent fly in the ointment is the prospect of further rises in interest rates and bond yields that already rose by about 1.5 per cent during 1999. A further similar rise in 2000 would almost certainly create some weakness in US share prices. Whether it would be sufficient to act as the catalyst for the much-predicted Wall Street correction is a much more difficult question to answer.
French unemployment was reported as having fallen to its lowest level in seven years and is forecast to decline to below 10 per cent this year. This is merely the latest in a series of economic statistics that indicate that there is now a well entrenched economic recovery across the euro zone.
Stronger growth in Germany and France supports forecasts of 3 per cent economic growth in Europe this year. Given that economists are expecting US growth to slow during 1999 and that the Japanese economy remains sluggish, the euro zone could well be the strongest area of growth during 2000.
The euro marked its first year in existence rather inauspiciously falling by 14 per cent against the US dollar and by 25 per cent against the yen. However, there is no sense of impending crisis in the European Central Bank, and if anything euro weakness in 1999 probably ensures a robust European economic recovery this year. The euro started life at €1.18 to the dollar and one of the surprises of 2000 could well be a strong recovery in the euro exchange rate.
Towards year-end several low-cost British stockbrokers stopped taking on customers as newly introduced Internet share-dealing services were swamped with huge volumes of private investor dealing. In this regard, British private investors are following in the footsteps of their US counterparts where the well-established full-service brokers such as Merrill Lynch have been forced to offer low-cost Internet dealing services.
This is a trend that seems set to spread across Europe including the Republic where the Irish Stock Exchange is planning to establish an electronic share dealing system sometime during 2000. Such a system would have to be in place before Irish brokers could offer private investors an Internet-based share dealing service.
For stock-market investors, another interesting year is in prospect which will inevitably result in many surprises. However, one outcome that one can confidently predict is that interest in investing directly in company shares will continue to grow rapidly among private investors.
