The US economy was not going into recession, it was merely suffering from "post-bubble disorder", analysts were told yesterday. This should bottom out in the next quarter or two and move into a recovery phase.

Mr Paul McCully, managing director of California-based Pacific Investment Management Company, told the Society of Investment Analysts: "What the Fed [Federal Reserve] is worried about is that a profits bust will trigger a long winter of sluggish investment, even after the sunny side of the inventory cycle emerges." It was also worried that diminished household expectations of wealth growth through the stock market would curb people's spending appetite for an extended period, especially if job losses mounted.

Mr McCully said people's confidence needed to be revived. This could be achieved through a combination of lower interest rates and lower taxes, which would inspire a "feel good factor" encouraging people to spend and invest. Mr Ralph Acampora, managing director of Prudential Securities, said the downturn in the US economy in March and April was powered by expectations of further interest rate cuts and a rash of earnings reports that came in line with lowered expectations. "We must see an orderly pull back in prices throughout May, which is usually a difficult month, or the yearly lows will be re-tested," he said.

He expected old economy stocks to fare better in the immediate future. He suggested the "bottom up" approach, which demands strict stock selection when entering the market. Mr Robin Griffiths, chief technical analyst at HSBC Securities, said the missing ingredient to entice investment was the euro. The recent cut in interest rates by the European Central Bank (ECB) was a step in the right direction. Mr Griffiths said once the euro got on its feet, people would realise that trading in it allowed a "double whammy" - if you buy in Europe, you also benefit from the euro.